Bulletin No.

2004-31
August 2, 2004

HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.

INCOME TAX Rev. Proc. 2004–45, page 140.

Rev. Rul. 2004–75, page 109.
Annuity payments. This ruling addresses the taxation of in-
come received by residents of Puerto Rico and nonresident
aliens under life insurance and annuity contracts issued by a
foreign branch of a U.S. life insurance company. The ruling
holds that income received by nonresident aliens under life in-
surance and annuity contracts issued by a foreign branch of a
U.S. life insurance company is U.S.-source FDAP income. The
ruling also holds that income received by bona fide residents
of Puerto Rico under life insurance or annuity contracts issued
by a Puerto Rican branch of a U.S. life insurance company is
U.S.-source income.
Rev. Rul. 2004–76, page 111.
Dual resident company. This ruling concludes that a dual
resident company, resident in both Country Y and Country X
under the domestic laws of those countries, is not entitled to
claim benefits under the U.S. income tax convention with Coun-
try X if it is treated as a resident of Country Y and not of Country
X for purposes of the income tax convention between Country
X and Country Y and, as a result, is not liable to tax in Country
X by reason of its residence. Rev. Rul. 73–354 obsoleted.
Rev. Rul. 2004–78, page 108.
Corporate reorganizations; exchange of debt instru-
ments. This ruling discusses the exchange of a debt security
for a debt instrument in a reorganization.
Rev. Rul. 2004–79, page 106.
Corporate distributions of property. This ruling addresses
the tax consequences of the distribution by a subsidiary to its
parent of parent indebtedness that the subsidiary previously
purchased from a party unrelated to the parent.
This procedure provides alternative disclosure procedures that
are deemed to satisfy a taxpayer’s disclosure obligations under
section 1.6011–4 of the regulations for transactions with a sig-
nificant book-tax difference under section 1.6011–4(b)(6). Tax-
payers also may continue to follow the disclosure procedures
provided in section 1.6011–4 for disclosing transactions de-
scribed in section 1.6011–4(b)(6).
EMPLOYEE PLANS
Rev. Proc. 2004–44, page 134.
Minimum funding standards; amortization; extensions.
This procedure sets forth guidelines for requesting extensions
of the amortization period of the minimum funding standards
with respect to defined benefit plans under section 412(e) of
the Code. Rev. Proc. 79–61 superseded. Rev. Proc. 2004–4
modified.
ESTATE TAX
REG–153841–02, page 145.
Proposed regulations provide guidance for making the election
under section 2632(c) of the Code to not have the deemed
allocation of unused generation-skipping transfer (GST) tax ex-
emption apply with regard to certain transfers to a GST trust.
The regulations also provide guidance for making the election
to treat a trust as a GST trust.

(Continued on the next page)

Announcements of Disbarments and Suspensions begin on page 149.

Finding Lists begin on page ii.
Rev. Proc. 2004–46, page 142.
This procedure provides a simplified alternate method for cer-
tain taxpayers to obtain an extension of time under section
301.9100–3 of the regulations to make an allocation of the
generation-skipping transfer exemption in accordance with sec-
tion 2642(b)(1) of the Code. Notice 2001–50 modified.
GIFT TAX
REG–153841–02, page 145.
Proposed regulations provide guidance for making the election
under section 2632(c) of the Code to not have the deemed
allocation of unused generation-skipping transfer (GST) tax ex-
emption apply with regard to certain transfers to a GST trust.
The regulations also provide guidance for making the election
to treat a trust as a GST trust.
Rev. Proc. 2004–46, page 142.
This procedure provides a simplified alternate method for cer-
tain taxpayers to obtain an extension of time under section
301.9100–3 of the regulations to make an allocation of the
generation-skipping transfer exemption in accordance with sec-
tion 2642(b)(1) of the Code. Notice 2001–50 modified.
EMPLOYMENT TAX
T.D. 9136, page 112.
Final regulations under section 3406 of the Code provide
guidance on the information reporting and backup withholding
requirements for payment card transactions made through a
Qualified Payment Card Agent (QPCA). These regulations pro-
vide a limited exception to backup withholding for reportable
payments made through a QPCA.
Rev. Proc. 2004–42, page 121.
This procedure provides the requirements for a payment card
organization to request and obtain an IRS determination that
it is a Qualified Payment Card Agent (QPCA) for purposes of
the related final regulations under sections 3406 and 6724 of
the Code that address the information reporting and backup
withholding requirements for payment card transactions.
Rev. Proc. 2004–43, page 124.
This document establishes an optional procedure for payors
who make payments in the course of their trade or business
through payment cards to determine whether the payments
are reportable under sections 6041 and 6041A of the Code
and the regulations thereunder. This procedure classifies busi-
nesses by Merchant Category Codes (MCCs), or other similar
codes, according to whether they predominantly furnish ser-
vices or predominantly provide goods.
August 2, 2004
ADMINISTRATIVE
Rev. Rul. 2004–68, page 118.
Disclosure of returns and return information. Rev. Rul.
54–379 concludes that heirs at law, next of kin, or beneficia-
ries who are distributees of a person who dies intestate under
state law have a “material interest” to receive the decedent’s
return information. The statute does not clearly address the
application of the “material interest” standard in the context of
a taxpayer who dies intestate. Rev. Rul. 54–379 superseded.
Rev. Rul. 2004–77, page 119.
Disregarded entities. This ruling concludes that, if an eligible
entity has two owners under local law, but one of the owners
is, for federal tax purposes, disregarded as an entity separate
from the other owner of the eligible entity, then the eligible en-
tity cannot be classified as a partnership and is either disre-
garded as an entity separate from its owner or an association
taxable as a corporation.
T.D. 9136, page 112.
Final regulations under section 3406 of the Code provide
guidance on the information reporting and backup withholding
requirements for payment card transactions made through a
Qualified Payment Card Agent (QPCA). These regulations pro-
vide a limited exception to backup withholding for reportable
payments made through a QPCA.
Rev. Proc. 2004–42, page 121.
This procedure provides the requirements for a payment card
organization to request and obtain an IRS determination that
it is a Qualified Payment Card Agent (QPCA) for purposes of
the related final regulations under sections 3406 and 6724 of
the Code that address the information reporting and backup
withholding requirements for payment card transactions.
Rev. Proc. 2004–43, page 124.
This document establishes an optional procedure for payors
who make payments in the course of their trade or business
through payment cards to determine whether the payments
are reportable under sections 6041 and 6041A of the Code
and the regulations thereunder. This procedure classifies busi-
nesses by Merchant Category Codes (MCCs), or other similar
codes, according to whether they predominantly furnish ser-
vices or predominantly provide goods.
2004–31 I.R.B.
The IRS Mission
Provide America’s taxpayers top quality service by helping
them understand and meet their tax responsibilities and by
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.
2004–31 I.R.B.
applying the tax law with integrity and fairness to all.
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions of
the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Sec-
retary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
August 2, 2004
Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 61.—Gross Income
Defined
26 CFR 1.61–12: Income from the discharge of in-
debtedness.
Whether gross income includes income from the
discharge of indebtedness if a subsidiary corporation
makes a distribution of parent indebtedness to the par-
ent corporation in a taxable year in which the sub-
sidiary corporation’s earnings and profits are greater
than or equal to the fair market value of the distributed
indebtedness? See Rev. Rul. 2004-79, page 106.
Section 108.—Income From
Discharge of Indebtedness
26 CFR 1.108–2(a): Acquisition indebtedness by a
person related to the debtor.
Whether when a subsidiary corporation makes a
distribution of parent indebtedness to the parent cor-
poration in a taxable year in which the subsidiary
corporation’s earnings and profits are greater than or
equal to the fair market value of the distributed in-
debtedness, there is realization by the debtor of in-
come from discharge of indebtedness? See Rev. Rul.
2004-79, page 106.
Section 301.—Distributions
of Property
26 CFR 1.301–1: Rules applicable with respect to
distributions of money and other property.
(Also §§ 61, 108; 1.61–12, 1.108–2(a).)
Corporate distributions of property.
This ruling addresses the tax consequences
of the distribution by a subsidiary to its
parent of parent indebtedness that the sub-
sidiary previously purchased from a party
unrelated to the parent.
Rev. Rul. 2004–79
ISSUE
If a subsidiary corporation makes a dis-
tribution of parent indebtedness to the par-
ent corporation in a taxable year in which
the subsidiary corporation’s earnings and
profits are greater than or equal to the fair
market value of the distributed indebted-
ness, what are the tax consequences of the
distribution?
2004–31 I.R.B.
FACTS
Situation 1
On January 1, Year 1, P, a domestic
corporation, issued indebtedness that pro-
vides for monthly interest payments of
$80,000 payable at the end of each month
and a principal payment of $10,000,000
on its stated maturity date of December
31, Year 4. The $80,000 monthly interest
payments are qualified stated interest pay-
ments within the meaning of § 1.1273–1(c)
of the Income Tax Regulations. S, a do-
mestic corporation, has only one class of
stock outstanding, all of which is owned
by P. On January 1, Year 2, S purchases all
of the P indebtedness from A, an individ-
ual not related to S under § 1.108–2(d)(2),
for cash in the amount of $9,500,000. On
that date, the adjusted issue price of the P
indebtedness is $10,000,000. On January
1, Year 3, S distributes all of the P indebt-
edness it holds to P. At the time of this
distribution, the fair market value of the P
indebtedness is $9,250,000. During Year
3, S makes no other distributions to P. P
and S do not join in filing a consolidated
return for Years 1 through 3. At all times,
the fair market value of P’s assets exceeds
the amount of its liabilities. At the end of
Year 3, S has earnings and profits in the
amount of $20,000,000.
Situation 2
The facts are the same as in Situation 1,
except that at the time S distributes the P
indebtedness to P, the fair market value of
the P indebtedness is $10,050,000.
LAW
Section 301(a) of the Internal Revenue
Code provides that a distribution of prop-
erty (as defined in § 317(a)) made by a cor-
poration to a shareholder with respect to its
stock shall be treated in the manner pro-
vided in § 301(c).
Section 301(b)(1) provides, in part, that
the amount of any distribution shall be
the amount of money received, plus the
fair market value of the other property re-
ceived.
Section 301(c) provides that the portion
of a distribution which is a dividend (as de-
fined in § 316) is included in gross income,
106
and that the remaining portion of the distri-
bution is applied first against the adjusted
basis of the stock and then is treated as gain
from the sale or exchange of property.
Section 316(a) provides that a dividend
is any distribution of property made by a
corporation to its shareholders out of the
corporation’s earnings and profits accu-
mulated after February 28, 1913, or out
of the corporation’s earnings and profits
of the taxable year, without regard to the
amount of the earnings and profits at the
time the distribution was made. Gener-
ally, every distribution is made out of earn-
ings and profits to the extent thereof, and
from the most recently accumulated earn-
ings and profits.
Section 317(a) defines “property” for
the purposes of the corporate distribution
provisions as money, securities, and any
other property, except for stock, or rights
to acquire stock, in the corporation making
the distribution. Section 1.317–1 provides
that the term "property" also includes in-
debtedness to the corporation.
Section 311(a) provides that, except as
provided in § 311(b), no gain or loss shall
be recognized to a corporation on the dis-
tribution (not in complete liquidation) with
respect to its stock of (1) its stock (or rights
to acquire its stock), or (2) property.
Section 311(b) provides that, if a cor-
poration distributes property (other than an
obligation of such corporation) to a share-
holder in a distribution to which subpart A
applies, and the fair market value of such
property exceeds its adjusted basis (in the
hands of the distributing corporation), then
gain shall be recognized to the distributing
corporation as if such property were sold
to the distributee at its fair market value.
Section 312(a) provides that, except as
otherwise provided, on the distribution of
property by a corporation with respect to
its stock, the earnings and profits of the
corporation (to the extent thereof) shall be
decreased by the sum of the amount of
money, the principal amount of the obliga-
tions of such corporation (or, in the case of
obligations having original issue discount,
the aggregate issue price of such obliga-
tions), and the adjusted basis of the other
property, so distributed.
August 2, 2004
 Section 312(b) provides that on the dis-
tribution by a corporation, with respect
to its stock, of any property (other than
an obligation of such corporation) the fair
market value of which exceeds the ad-
justed basis thereof, the earnings and prof-
its of the corporation shall be increased by
the amount of such excess, and reduced by
the fair market value of the property.
Section 61(a)(12) provides that
gross income includes income from
the discharge of indebtedness. Section
1.61–12(a) provides that the discharge of
indebtedness, in whole or in part, may
result in the realization of income.
Section 1.61–12(c)(2)(ii) provides that
an issuer realizes income from the dis-
charge of indebtedness upon the repur-
chase of a debt instrument for an amount
less than its adjusted issue price (within the
meaning of § 1.1275–1(b)). The amount
of discharge of indebtedness income is
equal to the excess of the adjusted issue
price over the repurchase price. Section
1.61–12(c)(2)(iii) provides that an issuer
may be entitled to a repurchase premium
deduction upon the repurchase of a debt
instrument for an amount greater than its
adjusted issue price.
Under § 1.163–7(c), if a debt instru-
ment is repurchased by the issuer for a
price in excess of its adjusted issue price,
the excess (repurchase premium) is gener-
ally deductible as interest for the taxable
year in which the repurchase occurs.
Section 1.1275–1(b)(1) provides that
the adjusted issue price of a debt instru-
ment at the beginning of the first accrual
period is the issue price. Thereafter, the
adjusted issue price of the debt instrument
is the issue price of the debt instrument
increased by the amount of original issue
discount (OID) previously includible in
the gross income of any holder (deter-
mined without regard to §§ 1272(a)(7) and
1272(c)(1)) and decreased by the amount
of any payment previously made on the
debt instrument other than a payment of
qualified stated interest.
Section 1.1272–1(g) provides that the
basis of a debt instrument in the hands of
the holder is increased by the amount of
OID included in the holder’s gross income
and decreased by the amount of any pay-
ment from the issuer to the holder under
the debt instrument other than a payment
of qualified stated interest.
August 2, 2004
Section 108(e)(4) provides that for pur-
poses of determining income of the debtor
from discharge of indebtedness, to the
extent provided in regulations prescribed
by the Secretary, the acquisition of out-
standing indebtedness by a person bearing
a relationship to the debtor specified in
§ 267(b) or 707(b)(1) from a person who
does not bear such a relationship to the
debtor shall be treated as the acquisition
of such indebtedness by the debtor.
Section 1.108–2(a) provides that the di-
rect or indirect acquisition of outstand-
ing indebtedness by a person related to
the debtor from a person who is not re-
lated to the debtor results in the realization
by the debtor of income from discharge
of indebtedness (to the extent required by
§§ 61(a)(12) and 108 in an amount deter-
mined under § 1.108–2(f)).
Section 1.108–2(f)(1) provides that the
amount of discharge of indebtedness in-
come realized under § 1.108–2(a) is mea-
sured by reference to the adjusted basis of
the related holder (or of the holder that be-
comes related to the debtor) in the indebt-
edness on the acquisition date if the holder
acquired the indebtedness by purchase on
or less than six months before the acquisi-
tion date.
Section 1.108–2(g) provides that for in-
come tax purposes, if a debtor realizes in-
come from discharge of indebtedness in a
direct or an indirect acquisition under this
section (whether or not the income is ex-
cludable under § 108(a)), the debtor’s in-
debtedness is treated as new indebtedness
issued by the debtor to the related holder
on the acquisition date (the deemed is-
suance). The new indebtedness is deemed
issued with an issue price equal to the
amount used under § 1.108–2(f) to com-
pute the amount realized by the debtor un-
der § 1.108–2(a) (i.e., either the holder’s
adjusted basis or the fair market value of
the indebtedness, as the case may be). Un-
der § 1273(a)(1), the excess of the stated
redemption price at maturity (as defined in
§ 1273(a)(2)) of the indebtedness over its
issue price is OID and, to the extent pro-
vided in §§ 163(e) and 1272, is deductible
by the debtor and includible in the gross
income of the related holder.
ANALYSIS
In Situation 1, because P and S have a
relationship specified in § 267(b)(3), un-
107
der § 108(e)(4), S’s purchase of the P in-
debtedness is treated as P’s acquisition of
that indebtedness. Under § 1.108–2(a),
S’s acquisition of the P indebtedness re-
sults in the realization by P of income from
the discharge of indebtedness to the ex-
tent required by §§ 61(a)(12) and 108. Be-
cause S purchased the P indebtedness for
an amount less than its adjusted issue price,
P is treated as realizing income from the
discharge of indebtedness in an amount
determined under § 1.108–2(f). Because
the adjusted issue price of the indebted-
ness ($10,000,000) exceeds S’s basis in
the indebtedness on the acquisition date
($9,500,000), P realizes $500,000 of in-
come from the discharge of indebtedness.
Under § 1.108–2(g), because P realizes
income from the discharge of indebted-
ness in connection with S’s acquisition
of the P indebtedness, the P indebtedness
is treated as new indebtedness issued by
P to S on the acquisition date. The new
indebtedness is deemed issued with an
issue price equal to S’s adjusted basis
in the indebtedness, $9,500,000. Under
§ 1273(a)(1), the $500,000 excess of the
stated redemption price at maturity of
the indebtedness ($10,000,000) over its
deemed issue price ($9,500,000) is OID.
In Year 2, P deducts from gross income
and S includes in gross income OID of
$147,868, calculated pursuant to § 1272.
Accordingly, as of January 1 of Year 3,
under §§ 1.1275–1(b)(1) and 1.1272–1(g),
respectively, the adjusted issue price of the
new indebtedness and S’s adjusted basis
in the indebtedness is $9,647,868.
Under §§ 317 and 1.317–1, the P in-
debtedness is property for purposes of the
corporate distribution provisions. There-
fore, S’s distribution of the P indebtedness
to P is a distribution of property described
in § 301. Under § 301(b), the amount of
such distribution is the fair market value of
the property distributed, $9,250,000. Un-
der § 301(c), because as of the end of Year
3 S has earnings and profits in excess of
that amount, the distribution in its entirety
is treated as a dividend to P.
Additionally, because the distribution
of the P indebtedness to P extinguishes
the indebtedness, it is repurchased within
the meaning of § 1.61–12(c)(2), and P is
treated as having repurchased its indebted-
ness for an amount equal to the fair market
value of the indebtedness, $9,250,000.
Cf. Cora-Texas Manufacturing Co., Inc.
2004–31 I.R.B.
v. U.S., 222 F. Supp. 527 (E.D. La.
1963), aff’d per curiam, 341 F.2d 579
(5th Cir. 1965) (treating a partnership’s
liquidating distribution to a partner of the
partner’s preferred stock as if the part-
ner retired the preferred stock for its fair
market value); Rev. Rul. 93–7, 1993–1
C.B. 125 (ruling that where a partnership
distributes indebtedness of a partner to
the issuing partner the partner is treated
as having satisfied its indebtedness for
an amount equal to the fair market value
of such indebtedness). Accordingly, un-
der § 1.61–12(c)(2)(ii), P realizes income
from the discharge of indebtedness in an
amount equal to $397,868, the excess of
the adjusted issue price of the P indebted-
ness ($9,647,868) over the amount of the
distribution ($9,250,000).
Under § 311(a), S does not recognize
the loss inherent in the P indebtedness on
the distribution of the P indebtedness. As
a result of the distribution, pursuant to
§ 312(a), S’s earnings and profits are re-
duced by its adjusted basis in the P indebt-
edness distributed, $9,647,868.
In Situation 2, the tax consequences of
S’s purchase of the P indebtedness are the
same as in Situation 1. In Year 3, the
amount of the distribution of the P indebt-
edness determined pursuant to § 301(b)
and treated as a dividend under § 301(c)
is $10,050,000. Additionally, P is treated
as having repurchased its indebtedness for
the same amount. Under § 1.163–7(c), P
is generally entitled to an interest deduc-
tion in an amount equal to the $402,132
excess of the amount of the distribution
($10,050,000) over the adjusted issue price
of the P indebtedness ($9,647,868). Un-
der § 311(b), S recognizes gain as if it
sold the indebtedness to P for an amount
equal to its $10,050,000 fair market value.
Thus, S recognizes gain in an amount equal
to $402,132, the excess of the fair mar-
ket value of the indebtedness distributed
($10,050,000) over S’s adjusted basis in
the indebtedness distributed ($9,647,868).
Under § 312(a) and (b), S’s earnings and
profits must be increased by $402,132, the
excess of the fair market value of the in-
debtedness distributed ($10,050,000) over
S’s adjusted basis in the indebtedness dis-
tributed ($9,647,868), and reduced by the
fair market value of the indebtedness dis-
tributed, $10,050,000.
2004–31 I.R.B.
HOLDING
If a subsidiary corporation makes a dis-
tribution of parent indebtedness to the par-
ent corporation in a taxable year in which
the subsidiary corporation’s earnings and
profits are greater than or equal to the fair
market value of the distributed indebted-
ness, the parent corporation is treated as
receiving a distribution treated as a divi-
dend in the amount of the fair market value
of the indebtedness on the date of the dis-
tribution and may realize discharge of in-
debtedness income or be entitled to an in-
terest deduction depending on the fair mar-
ket value of the indebtedness on the date of
the distribution relative to its adjusted is-
sue price.
DRAFTING INFORMATION
The principal author of this revenue rul-
ing is Sean McKeever of the Office of As-
sociate Chief Counsel (Corporate). For
further information regarding this revenue
ruling, contact Mr. McKeever at (202)
622–7750 (not a toll-free call).
Section 354.—Exchanges
of Stock and Securities in
Certain Reorganizations
26 CFR 1.354–1: Exchange of stock and securities in
certain reorganizations.
Corporate reorganizations; ex-
change of debt instruments. This ruling
discusses the exchange of a debt security
for a debt instrument in a reorganization.
Rev. Rul. 2004–78
ISSUE
Under the circumstances described be-
low, whether a debt instrument issued by
the acquiring corporation in a reorganiza-
tion in exchange for a security of the target
corporation is a security within the mean-
ing of § 354 of the Internal Revenue Code.
FACTS
On January 1, 2004, Target Corporation
issues debt instruments with a stated ma-
turity date of January 1, 2016. On the is-
sue date, the debt instruments provide for
a market rate of interest and are securities
108
within the meaning of § 354. Target Cor-
poration has outstanding one class of com-
mon stock. On January 1, 2014, pursuant
to state law, Target Corporation merges
into Acquiring Corporation in a transac-
tion that qualifies as a reorganization under
§ 368(a)(1)(A). In the merger, the Target
Corporation stockholders exchange their
Target Corporation common stock for Ac-
quiring Corporation common stock. Also
in the merger, the Target Corporation se-
curity holders exchange their Target Cor-
poration securities for Acquiring Corpora-
tion debt instruments with terms identical
to those of the Target Corporation securi-
ties (including the maturity date), except
that the interest rate is changed (for exam-
ple, to reflect differences in creditworthi-
ness between Target Corporation and Ac-
quiring Corporation). The modification of
the interest rate is a significant modifica-
tion under § 1.1001–3 of the Income Tax
Regulations.
LAW AND ANALYSIS
Section 368(a)(1)(A) provides, in part,
that the term “reorganization” includes a
statutory merger. Section 368(b) provides
that the term “party to a reorganization” in-
cludes a corporation resulting from a re-
organization and both corporations, in the
case of a reorganization resulting from the
acquisition by one corporation of stock or
properties of another corporation.
Section 354(a)(1) provides, in part, that
no gain or loss shall be recognized if secu-
rities in a corporation that is a party to a re-
organization are, in pursuance of the plan
of reorganization, exchanged solely for se-
curities in such corporation or in another
corporation that is a party to the reorgani-
zation.
Section 1.368–1(b) sets forth the gen-
eral rule that, upon an exchange, gain or
loss must be recognized if the new prop-
erty differs materially in kind or extent
from the old property. The regulation then
explains that the purpose of the reorga-
nization provisions is to except from the
general rule certain exchanges incident to
readjustments of corporate structures that
are required by business exigencies and
that effect only a readjustment of contin-
uing interests in property under modified
corporate forms. Congress has recognized
that when a taxpayer receives stock or se-
curities in exchange for stock or securities
August 2, 2004
owned by the taxpayer incident to a read-
justment of a corporate structure, the new
stock or securities are treated as taking the
place of the stock or securities exchanged
therefor. See H.R. Rep. No. 704, at 13–14
(1933).
Neither § 354 nor the regulations un-
der § 354 define the term “securities.”
Under case law, an instrument with a
term of less than five years generally is
not a security. See, e.g., Pinellas Ice &
Cold Storage Co. v. Commissioner, 287
U.S. 462 (1933) (holding that short-term
notes payable within four months were
not securities within the meaning of the
reorganization provisions); Lloyd-Smith
v. Commissioner, 116 F.2d 642 (2d Cir.),
cert. denied, 313 U.S. 588 (1941) (holding
that two-year notes were not securities);
Neville Coke & Chemical Co., 148 F.2d
599 (3d Cir.), cert. denied, 326 U.S.
726 (1945) (holding that three, four, and
five-year notes were not securities).
Under the foregoing authorities, an in-
strument with a term of two years gener-
ally would not qualify as a security. How-
ever, because the debt instruments of the
Acquiring Corporation are issued in the re-
organization in exchange for securities of
the Target Corporation and bear the same
terms (other than interest rate) as the se-
curities of the Target Corporation, the debt
instruments of the Acquiring Corporation
represent a continuation of the security
holder’s investment in the Target Corpora-
tion in substantially the same form. There-
fore, the debt instruments of the Acquir-
ing Corporation exchanged for the securi-
ties of the Target Corporation are securities
within the meaning of § 354.
HOLDING
Under the circumstances described
above, a debt instrument issued by the ac-
quiring corporation in a reorganization in
exchange for a security of the target cor-
poration is a security within the meaning
of § 354.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Ricky Thomas of the Office of
Associate Chief Counsel (Corporate). For
further information regarding this revenue
ruling, contact Ricky Thomas at (202)
622–7750 (not a toll-free call).
August 2, 2004
Section 412.—Minimum
Funding Standards
Procedures with respect to applications for exten-
sions of the amortization period under § 412(e) of the
Code and section 304 of ERISA are set forth. See
Rev. Proc. 2004-44, page 134.
Section 861.—Income
From Sources Within the
United States
(Also §§ 862, 933; 1.861, 1.862.)
Annuity payments. This ruling ad-
dresses the taxation of income received
by residents of Puerto Rico and nonresi-
dent aliens under life insurance and annu-
ity contracts issued by a foreign branch of
a U.S. life insurance company. The rul-
ing holds that income received by nonres-
ident aliens under life insurance and annu-
ity contracts issued by a foreign branch of a
U.S. life insurance company is U.S.-source
FDAP income. The ruling also holds that
income received by bona fide residents of
Puerto Rico under life insurance or an-
nuity contracts issued by a Puerto Rican
branch of a U.S. life insurance company is
U.S.-source income.
Rev. Rul. 2004–75
ISSUES
1. Whether income received by nonresi-
dent alien individuals under life insur-
ance and annuity contracts issued by a
foreign branch of a U.S. life insurance
company is U.S.-source income that
is subject to 30% tax and withholding
under sections 871(a) and 1441.
2. Whether income received by bona
fide residents of Puerto Rico under
life insurance and annuity contracts
issued by a Puerto Rican branch of
a U.S. life insurance company is
U.S.-source income that is subject to
the tax imposed by section 1.
FACTS
A U.S. life insurance company con-
ducts business in Country A and Puerto
Rico through a separate branch in each
jurisdiction. The branches sell a wide
range of insurance products including, but
not limited to, whole life, universal life,
and variable life insurance and fixed and
109
variable annuities to individuals living
in Country A and Puerto Rico. These
products are life insurance and annu-
ity contracts under the Internal Revenue
Code. See sections 72(s), 101(f), 817(h),
and 7702. There is no income tax treaty in
force between Country A and the United
States.
Individuals in Country A and Puerto
Rico pay premiums to the U.S. life insur-
ance company in exchange for the benefits
set forth in the relevant contracts. For ex-
ample, under a life insurance contract, the
life insurance company generally agrees,
in exchange for premiums, to pay a cer-
tain amount to a beneficiary upon the death
of the insured. Under an annuity con-
tract, the life insurance company typically
agrees, in exchange for premiums, to pay
a certain amount each year to the owner of
the contract beginning upon the owner’s
retirement and ending upon the owner’s
death. The life insurance company invests
the premiums received with respect to its
life insurance and annuity contracts in do-
mestic and foreign income-producing as-
sets, such as stocks and bonds.
The life insurance and annuity contracts
issued by the U.S. life insurance company
to individuals in Country A and Puerto
Rico have cash values. The individuals
in Country A and Puerto Rico withdraw
amounts from the cash values of their life
insurance and annuity contracts, and the
amounts withdrawn are gross income un-
der section 61 to the extent provided under
section 72. The individuals in Country A
and Puerto Rico also receive annuity pay-
ments under their annuity contracts that are
gross income under section 61 to the extent
provided under section 72.
This revenue ruling applies only to an-
nuity payments and withdrawals of cash
value that are gross income to the extent
provided under section 72, and does not
apply to amounts received under life insur-
ance contracts by reason of the death of the
insured that are excludible from gross in-
come under section 101.
LAW
Section 861(a) specifies that certain
items of income are U.S.-source income.
Section 861(a)(1) generally provides that
interest is U.S.-source income when paid
by a U.S. obligor. Section 861(a)(2)
generally provides that dividends are
2004–31 I.R.B.
U.S.-source income when paid by a do-
mestic corporation. Section 861(a) does
not specify the source of income paid by
a U.S. life insurance company under a life
insurance or annuity contract.
When the source of an item of income
is not specified by statute or by regulation,
courts have determined the source of the
item by comparison and analogy to classes
of income specified within the statute.
Bank of America v. United States, 680
F.2d 142, 147 (Ct. Cl. 1982); Howkins
v. Commissioner, 49 T.C. 689 (1968). In
Clayton v. United States, 33 Fed. Cl. 628
(1995), aff’d. without published opin-
ion, 91 F.3d 170 (Fed. Cir. 1996), cert.
denied, 519 U.S. 1040 (1996), the Court
of Federal Claims held that the earnings
and accretions component of distributions
made by an employee stock ownership
plan (“ESOP”) to foreign participants was
U.S.-source income because the trust un-
derlying the ESOP was a domestic trust.
See also, Rev. Rul. 79–388, 1979–2 C.B.
270.
Section 871(a) generally provides that a
tax of 30 percent is imposed on an amount
received from U.S. sources by a nonresi-
dent alien individual as interest, dividends,
rents, annuities, and other fixed or deter-
minable annual or periodical gains, profits,
and income (“FDAP income”), provided
that the amount is not income that is effec-
tively connected with the conduct of a U.S.
trade or business (“ECI”). The 30-percent
tax is imposed by section 871(a) only upon
the amount that constitutes gross income.
Treas. Reg. 1.871–7(a)(2). Section 61(a)
generally provides that annuities and in-
come from life insurance and endowment
contracts are included in gross income.
Section 72 generally provides rules for de-
termining the portion of certain amounts
received under an annuity, endowment, or
life insurance contract that is included in
gross income.
FDAP income generally includes all
U.S.-source income included in gross in-
come under section 61, except for gain
derived from the sale of property, or
any other income that the Internal Rev-
enue Service determines, in published
guidance, is not FDAP income. Treas.
Reg. §1.871–7(b)(1), 1.1441–2(b)(1)(i),
and 1.1441–2(b)(2). Moreover, section
871(a)(1) specifically includes amounts
received as annuities as a type of FDAP
income. In Barba v. United States, 2 Cl.
2004–31 I.R.B.
Ct. 674 (1983), the court, in determining
whether gambling winnings of nonresident
alien individuals from U.S. sources were
FDAP income, concluded that the words
“fixed and determinable annual or period-
ical gains” should be interpreted broadly
to include all classes of income, except
income arising from the sale of property.
See also, Commissioner v. Wodehouse,
337 U.S. 369 (1949).
Section 933(1) provides that in the case
of an individual who is a bona fide resident
of Puerto Rico during the entire taxable
year, income derived from sources within
Puerto Rico (except amounts received for
services performed as an employee of the
United States or any agency thereof) is not
included in gross income.
Treas. Reg. 1.863–6 provides that
the principles applied for determining in-
come from sources within and without the
United States shall generally be applied
for purposes of determining income from
sources within and without a possession of
the United States.
Section 876 provides that in the case of
an alien individual who is a bona fide res-
ident of Puerto Rico, sections 871 through
879 do not apply and such individual is
subject to the tax imposed by section 1.
ANALYSIS
Because section 861(a) does not include
rules specifying the source of income re-
ceived under a life insurance or annuity
contract under section 72, the source of
such income is determined by comparison
and analogy to classes of income that are
specified within the statute. Bank of Amer-
ica, 680 F.2d at 147; Howkins, 49 T.C. at
689. Income received under a life insur-
ance or annuity contract under section 72
is an investment return on the cash value
of the contract and is analogous to (1) in-
terest on a debt obligation, (2) dividends
on a stock, and (3) earnings and accretions
on pension fund assets. Thus, the source
of that income is determined in the same
manner as the source of interest, dividends,
and earnings and accretions on pension
fund assets. Under sections 861(a)(1) and
(2), interest or dividends are U.S. source
when the obligor or corporation, respec-
tively, is domestic. Earnings and accre-
tions on pension fund assets are also U.S.
source when the pension trust is domestic.
Clayton, 33 Fed. Cl. 628. Accordingly,
110
income received under a life insurance or
annuity contract is U.S. source when the
issuer of the contract is a domestic corpo-
ration.
Income received from a life insurance
or annuity contract under section 72 is
not gain derived from the sale of property
or income that is excluded from FDAP
income by the IRS in published guid-
ance. Payments from annuity contracts
are specifically listed as a type of FDAP
income in section 871(a)(1)(A). Thus,
income received from a life insurance or
annuity contract under section 72, both
annuity payments and withdrawals made
from the cash value of the contract, is
FDAP income. Accordingly, when such
income is received by nonresident alien
individuals, it generally is subject to 30%
tax and withholding under sections 871(a)
and 1441.
Payments made to bona fide residents
of Puerto Rico with respect to life insur-
ance and annuity contracts issued by a
Puerto Rican branch of a U.S. life insur-
ance company are derived from sources
within the United States under the princi-
ples described above. Because the pay-
ments are not derived from Puerto Rican
sources, the payments are not excludible
from gross income of the recipient under
section 933.
Although the U.S.-source income of
bona fide residents of Puerto Rico is sub-
ject to U.S. income tax, payments to such
residents are not generally subject to tax
and withholding under sections 871 and
1441. Bona fide residents of Puerto Rico
who are citizens of the United States, as
well as bona fide residents of Puerto Rico
who are lawful permanent residents of
the United States, are generally subject to
the tax imposed by section 1. Moreover,
under section 876, bona fide residents of
Puerto Rico who are not citizens of the
United States also are generally subject to
the tax imposed by section 1.
HOLDINGS
1. Income received by nonresident alien
individuals under life insurance or
annuity contracts issued by a foreign
branch of a U.S. life insurance com-
pany is U.S.-source FDAP income
that is subject to 30% tax and with-
holding under sections 871(a) and
1441.
August 2, 2004
2. Income received by bona fide resi-
dents of Puerto Rico under life insur-
ance or annuity contracts issued by
a Puerto Rican branch of a U.S. life
insurance company is U.S.-source in-
come that is subject to the tax imposed
by section 1.
DRAFTING INFORMATION
The principal author of this revenue rul-
ing is Gregory A. Spring of the Office
of the Associate Chief Counsel (Interna-
tional). For further information regarding
this revenue ruling, contact Mr. Spring at
(202) 622–3870 (not a toll-free call).
Section 862.—Income
From Sources Without
the United States
A revenue ruling describes income from sources
within the United States for certain income received
by nonresident aliens and bona fide residents of
Puerto Rico under life insurance and annuity con-
tracts issued by a foreign branch of a U.S. life
insurance company. See Rev. Rul. 2004-75, page
109.
Section 894.—Income
Affected by Treaty
26 CFR 1.894–1: Income affected by treaty.
Dual resident company. This ruling
concludes that a dual resident company,
resident in both Country Y and Country X
under the domestic laws of those countries,
is not entitled to claim benefits under the
U.S. income tax convention with Country
X if it is treated as a resident of Country Y
and not of Country X for purposes of the
income tax convention between Country
X and Country Y and, as a result, is not
liable to tax in Country X by reason of its
residence. Rev. Rul. 73–354 obsoleted.
Rev. Rul. 2004–76
ISSUE
If Corporation A, a resident of both
Country X and Country Y under the laws
of each country, is treated as a resident
of Country Y and not of Country X for
purposes of the X-Y Convention and, as
a result, is not liable to tax in Country X
by reason of its residence, is it entitled to
August 2, 2004
claim the benefits of the U.S.-X Conven-
tion as a resident of Country X or of the
U.S.-Y Convention as a resident of Coun-
try Y?
FACTS
Situation 1
Corporation A is incorporated under the
laws of Country X. Its place of effective
management is situated in Country Y. Cor-
poration A does not have a fixed place of
business in Country X. Under the laws of
Country X, prior to application of any in-
come tax convention, Corporation A is li-
able to tax as a resident. Under the laws of
Country Y, prior to application of any in-
come tax convention, Corporation A is li-
able to tax as a resident. Corporation A re-
ceives U.S.-source income during the tax-
able year, with respect to which it seeks
benefits under either the U.S. income tax
convention with Country X (U.S.-X Con-
vention) or the U.S. income tax convention
with Country Y (U.S.-Y Convention).
The relevant articles of the U.S.-X Con-
vention and the U.S.-Y Convention each
provide:
Except as provided in this paragraph,
for the purposes of this Convention, the
term “resident of a Contracting State”
means any person who, under the laws
of that State, is liable to tax therein by
reason of his domicile, residence, citi-
zenship, place of management, place of
incorporation, or any other criterion of
a similar nature.
***
The term “resident of a Contracting
State” does not include any person who
is liable to tax in that State in respect
only of income from sources in that
State.
There is in force an income tax con-
vention between Country X and Country
Y (the X-Y Convention) that contains the
following article with respect to residence:
For purposes of the Convention, the
term “resident of a Contracting State”
means any person who, under the laws
of that State, is liable to tax therein by
reason of his domicile, residence, place
of management or any other criterion of
a similar nature, and also includes that
State and any political subdivision or
111
local authority thereof. This term, how-
ever, does not include any person who is
liable to tax in that State in respect only
of income from sources in that State or
capital situated therein.
***
Where by reason of the above para-
graph, a person other than an individual
is a resident of both Contracting States,
the person shall be deemed to be a resi-
dent only of the State in which its place
of effective management is situated.
Situation 2
The facts are the same as in Situation
1 except that Corporation A has a fixed
place of business in Country X, to which
the income is attributable.
LAW AND ANALYSIS
In Situation 1, before application of the
X-Y Convention, Corporation A would be
a resident of both Country X and Coun-
try Y under the domestic laws of each of
Country X and Country Y. After the ap-
plication of the relevant article of the X-Y
Convention, Corporation A is treated as a
resident of Country Y and not a resident
of Country X because its place of effective
management is situated in Country Y.
Accordingly, Corporation A continues
to be liable to tax in Country Y by reason
of residence. Therefore, under the relevant
article of the U.S.-Y Convention, Corpora-
tion A is a resident of Country Y. Corpora-
tion A will be entitled to claim benefits un-
der the U.S.-Y Convention as a resident of
Country Y with respect to the U.S.-source
income if it satisfies the requirements of
the applicable limitation on benefits arti-
cle, if any, and other applicable require-
ments in order to receive benefits under the
U.S.-Y Convention.
Because Corporation A is treated as
a resident of Country Y for purposes of
the X-Y Convention, Corporation A is
not subject to comprehensive taxation in
Country X as it would be if it were liable
to tax by reason of residence. Therefore,
Corporation A is not a resident of Country
X under the relevant article of the U.S.-X
Convention and is not entitled to claim
benefits under the U.S.-X Convention as a
resident of Country X.
In Situation 2, after the application of
the X-Y Convention, Corporation A con-
tinues to be liable to tax in Country Y by
2004–31 I.R.B.
reason of residence. Therefore, under the
relevant article of the U.S.-Y Convention,
Corporation A is a resident of Country Y.
Corporation A will be entitled to claim
benefits under the U.S.-Y Convention as a
resident of Country Y with respect to the
U.S.-source income if it satisfies the re-
quirements of the applicable limitation on
benefits article, if any, and other applica-
ble requirements in order to receive bene-
fits under the U.S.-Y Convention.
Because Corporation A is treated as a
resident of Country Y for purposes of the
X-Y Convention, Corporation A’s fixed
place of business in Country X is treated
as a permanent establishment within the
meaning of the X-Y Convention. Thus,
Corporation A is liable to tax in Country X
in respect of profits attributable to its per-
manent establishment, but is not subject to
comprehensive taxation in Country X as it
would be if it were liable to tax by reason
of residence. Therefore, Corporation A is
not a resident of Country X under the rele-
vant article of the U.S.-X Convention and
is not entitled to claim benefits under the
U.S.-X Convention as a resident of Coun-
try X.
Rev. Rul. 73–354, 1973–2 C.B.
435, provided that a bank incorporated
in Switzerland, managed and controlled in
the United Kingdom, and engaged in the
conduct of a business in both Switzerland
and the United Kingdom, could choose to
apply the provisions of either the United
States-Swiss Confederation Income Tax
Convention then in force or the United
States-United Kingdom Income Tax Con-
vention then in force to interest arising in
the United States. Under those conven-
tions, which are no longer in force, the
determination of whether a corporation
was a resident did not depend on whether
the corporation was liable to tax in that
country.
HOLDING
If Corporation A is treated as a resident
of Country Y and not of Country X for pur-
poses of the X-Y Convention and, as a re-
sult, is not liable to tax in Country X by
reason of its residence, it is not entitled to
claim benefits under the U.S.-X Conven-
tion, because it is not a resident of Country
X under the relevant article of the U.S.-X
Convention. However, Corporation A is
entitled to claim benefits under the U.S.-Y
2004–31 I.R.B.
Convention as a resident of Country Y, if
it satisfies the requirements of the appli-
cable limitation on benefits article, if any,
and other applicable requirements in order
to receive benefits under the U.S.-Y Con-
vention.
This holding is applicable in interpret-
ing income tax treaties that contain provi-
sions that are the same as or similar to the
relevant articles of the U.S.-X Convention,
the U.S.-Y Convention, and the X-Y Con-
vention.
EFFECT ON OTHER REVENUE
RULINGS
Rev. Rul. 73–354, 1973–2 C.B. 435, is
obsolete.
DRAFTING INFORMATION
The principal author of this revenue rul-
ing is Michelle S. Lyon of the Office of
Associate Chief Counsel (International).
For further information regarding this rev-
enue ruling, contact Ms. Lyon at (202)
622–3880 (not a toll-free call).
Section 933.—Income From
Sources Within Puerto Rico
A revenue ruling describes income from sources
within the United States for certain income received
by nonresident aliens and bona fide residents of
Puerto Rico under life insurance and annuity con-
tracts issued by a foreign branch of a U.S. life
insurance company. See Rev. Rul. 2004-75, page
109.
Section 2631.—GST
Exemption
If, prior to 2001, a transferor failed to affirma-
tively allocate GST exemption, may the transferor re-
quest an automatic extension of time under sections
2642(g) and 301.9100–3 to make a timely allocation?
See Rev. Proc. 2004-46, page 142.
Section 2642.—Inclusion
Ratio
If, prior to 2001, a transferor failed to affirma-
tively allocate GST exemption, may the transferor re-
quest an automatic extension of time under sections
2642(g) and 301.9100–3 to make a timely allocation?
See Rev. Proc. 2004-46, page 142.
112
Section 3406.—Backup
Withholding
A revenue procedure establishes a procedure for a
payment card organization to request a determination
that it is a Qualified Payment Card Agent (QPCA)
for purposes of sections 3406 and 6724 and the reg-
ulations thereunder. See Rev. Proc. 2004-42, page
121.
A revenue procedure provides an optional pro-
cedure that payors may use to determine whether
payment card transactions are reportable under sec-
tion 6041 or section 6041A and the regulations
thereunder. In addition, this procedure may be used
to determine whether payment card transactions are
reportable payments for purposes of the IRS TIN
Matching Program under section 3406 and the reg-
ulations thereunder. See Rev. Proc. 2004-43, page
124.
26 CFR 31.3406(g)–1: Exceptions for payments to
certain payees and certain other payments.
T.D. 9136
DEPARTMENT OF
THE TREASURY
Internal Revenue Service
26 CFR Parts 31, 301, and
602
Information Reporting and
Backup Withholding for
Payment Card Transactions
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regula-
tions.
SUMMARY: This document contains final
regulations relating to the information re-
porting requirements, information report-
ing penalties, and backup withholding re-
quirements for payment card transactions.
This document also contains final regu-
lations relating to the IRS TIN Matching
Program. The regulations in this document
affect payors (and their authorized agents)
and payees of certain reportable payments
and provide guidance necessary to comply
with the law.
DATES:
Effective Date: These regulations are ef-
fective July 13, 2004.
August 2, 2004
 Applicability Dates: The amendments
to §31.3406(g)–1 are applicable for pay-
ments made on or after January 1, 2005.
The amendments to §301.6724–1 are ap-
plicable for information returns required
to be filed, and information statements re-
quired to be furnished, after December 31,
2005. Section 31.3406(j)–1(a) and (f) are
applicable January 31, 2003.
FOR FURTHER INFORMATION
CONTACT: Concerning the regulations,
Donna Welch, (202) 622–4910 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information con-
tained in these final regulations has been
submitted to the Office of Management
and Budget for review in accordance with
the Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)) under control number
1545–1819.
The collection of information is in
§31.3406(g)–1(f)(3). This information is
necessary to notify a cardholder/payor that
a merchant/payee is not a qualified payee
for purposes of the regulations. This infor-
mation will alert a cardholder/payor that
backup withholding under section 3406
may apply for future reportable payments.
The collection of information is voluntary
to obtain a benefit. The likely respondents
are business or other for-profit institutions.
Estimated total annual reporting bur-
den: 11,750,000 hours.
Estimated average annual burden per
respondent: 5,875 hours.
Estimated number of respondents:
2,000.
Estimated annual frequency of re-
sponses: monthly.
Comments concerning the accu-
racy of this burden and suggestions
for reducing this burden should be
sent to the Internal Revenue Service,
Attn: IRS Reports Clearance Officer,
SE:W:CAR:MP:T:T:SP, Washington, DC
20224, and to the Office of Manage-
ment and Budget, Attn: Desk Officer for
the Department of the Treasury, Office
of Information and Regulatory Affairs,
Washington, DC 20503.
An agency may not conduct or sponsor,
and a person is not required to respond to, a
collection of information unless it displays
August 2, 2004
a valid control number assigned by the Of-
fice of Management and Budget.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.
Background
This document contains amendments
to 26 CFR part 31 relating to backup
withholding and the IRS TIN Matching
Program under section 3406 of the Inter-
nal Revenue Code (Code). It also contains
amendments to 26 Part 301 relating to
waivers under section 6724 of information
reporting penalties under sections 6721
and 6722.
Section 6041(a) requires persons en-
gaged in a trade or business and making
payment in the course of such trade or
business to another person of rent, salaries,
wages, premiums, annuities, compensa-
tions, remunerations, emoluments, or
other fixed or determinable gains, profits,
and income of $600 or more in any one
taxable year to file information returns
with the IRS and to furnish information
statements to payees. Among other items,
the payor must include the payee’s name
and taxpayer identification number (TIN)
on the information return and the informa-
tion statement.
In general, section 6721(a)(1) imposes
a $50 penalty for each failure to file an in-
formation return on or before the required
filing date, for any failure to include all of
the information required to be shown on
the return, or for the inclusion of incorrect
information. Section 6724(a) provides that
no penalty will be imposed under section
6721 if it is shown that the failure is due
to reasonable cause and not to willful ne-
glect.
Section 3406(a)(1) requires a payor to
withhold on any reportable payment (as
defined in section 3406(b)(1)) if (1) the
payee fails to furnish the payee’s TIN to
the payor as required or (2) the Secretary
notifies the payor that the TIN furnished by
the payee is incorrect. Section 3406(a)(1)
also requires withholding in certain other
situations that are not addressed in these
regulations. Section 3406(i) provides that
the Secretary shall prescribe the regula-
113
tions necessary or appropriate to carry out
the purposes of section 3406.
A payment card transaction is a trans-
action in which a cardholder/payor uses
a payment card to purchase goods or ser-
vices and a merchant agrees to accept a
payment card as a means of obtaining pay-
ment. A payment card is a card (or an ac-
count) that (1) is issued by a payment card
organization or one of its members, affil-
iates, or licensees to a cardholder/payor
and (2) represents, upon presentation to a
merchant/payee, an agreement of the card-
holder to pay the merchant through the
payment card organization. A payment
card organization is an entity that sets the
standards and provides the mechanism,
acting directly or indirectly through its
members, affiliates, or licensees, for ef-
fectuating payment between a purchaser
and a merchant in a payment card transac-
tion.
Information reporting compliance is
difficult in payment card transactions
because an invoice may not be issued,
and the employee representing the card-
holder/payor in the transaction may not
request and obtain the name/TIN combi-
nation of the merchant/payee at the time
of the transaction. In addition, backup
withholding may be difficult because a
merchant receives payment from the pay-
ment card organization within a few days
after the transaction, but the cardholder
does not pay the payment card organiza-
tion until after it receives a payment card
monthly billing statement.
The Temporary and Proposed
Regulations
On January 31, 2003, temporary reg-
ulations relating to the IRS TIN Match-
ing Program were published in the Federal
Register (T.D. 9041, 2003–1 C.B. 510 [68
FR 4922]). The temporary regulations per-
mit a payor’s authorized agent to partici-
pate in the IRS TIN Matching Program on
behalf of the payor. Under the authority
of these temporary regulations, the IRS is-
sued Rev. Proc. 2003–9, 2003–1 C.B. 516,
that allows payors’ authorized agents, as
well as all payors, to participate in the IRS
TIN Matching Program.
A notice of proposed rulemaking
(REG–116641–01, 2003–1 C.B. 518)
cross-referencing the temporary regula-
tions was also published in the Federal
2004–31 I.R.B.
Register (68 FR 4970) for January 31,
2003. The notice of proposed rulemak-
ing contained additional proposed rules
relating to the information reporting and
backup withholding requirements for pay-
ment card transactions effectuated through
a Qualified Payment Card Agent (QPCA).
The proposed regulations provide lim-
ited exceptions to the backup withhold-
ing requirements for payment card trans-
actions. The principal exception applies if
the payment is made through a QPCA and
the payee is a qualified payee.
A payee is qualified for this purpose if,
at the time of the payment, the QPCA has
validated the payee’s TIN through the IRS
TIN Matching Program or if the payment
is made during the six-month period fol-
lowing the date on which the QPCA first
obtained the payee’s TIN (six-month grace
period). Under the proposed regulations,
a QPCA must notify a cardholder/payor
of any merchant/payees that are not quali-
fied payees. The notice must appear on the
billing information for the payment.
The proposed regulations provide a
second exception for payments to per-
sons other than qualified payees. Under
this exception, reportable payments made
through a QPCA are exempt from backup
withholding if the payment is made within
60 days after the date of the first payment
with respect to which the QPCA is re-
quired to provide notification to the payor
that the payee is not a qualified payee.
In addition, the proposed regulations
provide that cardholder/payors may estab-
lish reasonable cause for a failure to in-
clude all of the information required to
be shown on their information returns, or
for the inclusion of incorrect information,
based on reliance on merchant/payee TINs
supplied through a QPCA.
The proposed regulations provide that
the rules relating to backup withholding
and information reporting for payment
card transactions apply during 2004. The
temporary rule permitting agents to par-
ticipate in the TIN matching program was
effective January 31, 2003.
A public hearing was held on the pro-
posed regulations on May 2, 2003. The
IRS also received written and electronic
comments responding to the notice of pro-
posed rulemaking.
2004–31 I.R.B.
Explanation of Provisions and
Summary of Comments
After consideration of all the com-
ments, the proposed regulations relating
to the backup withholding requirements
for payment card transactions effectu-
ated through a QPCA and the reasonable
cause exception to information report-
ing penalties are adopted as revised by
this Treasury decision. The revisions are
discussed below. The temporary amend-
ments to the regulations relating to the IRS
TIN Matching Program are also adopted
as final regulations and the corresponding
temporary regulations are removed.
1. Backup Withholding
Several commentators recommended
that the final regulations eliminate the
qualified payee requirement and provide
a complete exemption from backup with-
holding for payment card transactions
made through a QPCA. One commen-
tator noted that §31.3406(g)–2(e) of the
regulations provides that a real estate re-
porting person is not required to backup
withhold on a real estate transaction sub-
ject to reporting under section 6045. As
an alternative to backup withholding, this
commentator suggested that the QPCA
should provide a list to the IRS of the mer-
chant/payees for whom the QPCA cannot
obtain valid TINs. The commentator fur-
ther suggested that the IRS should impose
penalties on the merchant/payees who fail
to furnish valid TINs, rather than require
backup withholding.
The regulatory exception for real
estate transactions is based on section
3406(h)(5)(D), which provides that, ex-
cept as otherwise provided in regulations,
a real estate broker (as defined in section
6045(e)(2)) is not a broker for purposes of
section 3406. The Code also includes lim-
ited grants of regulatory authority to ex-
cept otherwise reportable payments from
backup withholding in section 3406(b)(5)
(relating to payments that do not exceed
$10) and in section 3406(g) (relating to
payments to specified payees). The IRS
and the Treasury Department do not view
these limited grants of regulatory authority
as authorizing a regulatory exemption for a
broad class of transactions, which accord-
ing to the comments involve payments of
over $100 billion per year, regardless of
114
the payee’s identity or compliance with its
tax obligations. Therefore, the final regu-
lations do not adopt the recommendation
for a complete exemption from backup
withholding for payment card transactions
made through a QPCA.
Several comments criticized the spe-
cific rules for determining whether a payee
is a qualified payee and when backup with-
holding is required with respect to a payee
who is not qualified. In general, the com-
mentators viewed these rules as incompat-
ible with current business practice because
they require QPCAs to evaluate the sta-
tus of payees at the time of each trans-
action and to communicate to cardholders
through the billing process. The commen-
tators suggested various changes to con-
form the rules to current business prac-
tices.
The IRS and the Treasury Department
agree that the rules should accommodate
current business practices to the extent
practicable but believe some of the sug-
gestions in the comments go beyond what
is necessary and provide excessive periods
of exemption from backup withholding
for noncompliant payees. Accordingly,
the final regulations include a number of
new rules to address the commentators’
concerns but do not adopt all of the spe-
cific changes suggested in the comments.
As suggested in the comments, the fi-
nal regulations eliminate the requirement
that QPCAs include information regarding
payee status with the billing statement fur-
nished to the payor. Instead, the final regu-
lations require that the information be fur-
nished within four months of the date of
the payment and permit the information to
be furnished as part of a quarterly or other
regular report of payee data to the card-
holder. To eliminate the need to evaluate
the status of payees at the time of each pay-
ment, the final regulations permit QPCAs
to treat all payments made during a calen-
dar quarter or any shorter reporting period
as being made on the last day of the pe-
riod. Thus, for a QPCA choosing this treat-
ment, a payee will be treated as a qualified
payee with respect to all payments during
the period if the QPCA obtains and veri-
fies the payee’s TIN at any time before the
end of the period. Similarly, payments will
be treated as being made on the last day of
the reporting period for purposes of deter-
mining whether they are made within the
six-month grace period. In this case, how-
August 2, 2004
ever, the regulations also provide that the
grace period with respect to a payee will
be treated as beginning not on the date of
the first payment to the payee but on the
first day of the reporting period in which
the QPCA makes the payment.
The 60-day exception from backup
withholding for payments made to persons
that are not qualified payees is also modi-
fied to reflect the new rules for determin-
ing payee status and notifying cardholders.
The exception in the final regulations ap-
plies to purchases made no later than two
months after the last date for providing the
first notice informing the cardholder that
the payee is not a qualified payee.
One commentator suggested that a
QPCA should be allowed to furnish infor-
mation regarding payee status electroni-
cally on a secure website. The IRS and
the Treasury Department are continuing
to consider this comment and may issue
further guidance on this issue.
Several commentators requested that
the final regulations clarify that the indi-
vidual to whom the card is issued is not
the cardholder/payor if another person is
responsible for paying the charges on the
card. The commentators were concerned
that employees might be treated as card-
holders in situations where payment cards
are issued to employees of the person re-
sponsible for paying charges on the card.
The final regulations provide the requested
clarification.
Several commentators requested that
the final regulations clarify that a QPCA
may act directly or indirectly through its
members, affiliates, or licensees. The final
regulations also provide this clarification.
Several commentators requested clari-
fication of the cardholder/payor’s obliga-
tions if the payor receives notification that
a payee is not a qualified payee. Under the
final regulations, backup withholding may
be required for purchases made more than
two months after the last date for furnish-
ing the first notification that the payee is
not a qualified payee. For purchases af-
ter that date, the payor must backup with-
hold on any reportable payment unless it
has obtained the payee’s TIN in accor-
dance with the generally applicable rules
under section 3406 or the QPCA has reme-
died the failure that caused the disqual-
ification by obtaining and verifying the
payee’s TIN. If the payor is required to
backup withhold and ordinarily uses a pay-
August 2, 2004
ment method incompatible with backup
withholding, the continued use of that pay-
ment method will not relieve the payor of
its backup withholding obligation. (See
section 3406(h)(10), which provides pay-
ments subject to backup withholding are
treated as wages paid by an employer to
an employee; and section 3403, which pro-
vides that an employer is liable for taxes
required to be withheld and deducted.)
2. Effective Dates
Because the proposed rules relating to
backup withholding and information re-
porting for payment card transactions were
not finalized before the beginning of 2004,
their effective dates have been delayed.
The final rules relating to backup with-
holding will apply to payments made af-
ter 2004 and final rules relating to infor-
mation reporting will apply to returns due
after 2005. The temporary rule permitting
agents to participate in the TIN matching
program is adopted as a final regulation
with no change to its effective date of Jan-
uary 31, 2003.
One payment card organization sug-
gested that the IRS repropose the regula-
tions or issue them with an effective date
of not less than two years after publication.
The comment noted that reproposing the
regulations would provide an opportunity
for further study and comment and would
provide time to test the rules in a pilot pro-
gram. This suggestion was not adopted.
The IRS and the Treasury Department rec-
ognize that providing an opportunity for
further comment may result in improved
rules, but there is no assurance that this
will be the case. The IRS and the Treasury
Department believe that the indeterminate
benefit suggested in the comment does not
outweigh the certainty that the suggested
delay would deny payors any benefit from
the backup withholding exception and
penalty relief contained in the final regu-
lations during the period of the delay.
Other Guidance
The IRS is also issuing two revenue pro-
cedures to implement the rules contained
in the final regulations. The first of these
revenue procedures sets forth the require-
ments that a payment card organization
must satisfy to obtain an IRS determina-
tion that it is a QPCA. The revenue proce-
dure also provides that a QPCA may act
115
on behalf of a cardholder/payor for pur-
poses of soliciting, collecting, and validat-
ing the names/TINs of the merchant/pay-
ees and on behalf of a merchant/payee for
purposes of furnishing the payee’s name
and TIN to the cardholder/payor.
The second revenue procedure provides
an optional procedure for payors and their
authorized agents to use in determining
whether payment card transactions are
reportable under section 6041 or section
6041A and are reportable payments for
purposes of the IRS TIN Matching Pro-
gram. In general, this revenue procedure
classifies businesses by Merchant Cate-
gory Codes (MCCs), or other equivalent
Industry Codes, according to whether they
predominantly furnish services (for which
payments are reportable) or predominantly
provide goods (for which payments are not
reportable). Under the revenue procedure,
payment card organizations would be
permitted to assign MCCs, or other equiv-
alent Industry Codes, to payees and payors
would be permitted to rely on the assigned
codes for information reporting and TIN
matching purposes.
Special Analyses
It has been determined that this Treasury
decision is not a significant regulatory ac-
tion as defined in Executive Order 12866.
Therefore, a regulatory assessment is not
required. It has also been determined that
section 553(b) of the Administrative Pro-
cedure Act (5 U.S.C. chapter 5) does not
apply to these regulations.
It is hereby certified pursuant to the
Regulatory Flexibility Act (5 U.S.C. chap-
ter 6) that the collection of information
contained in these regulations will not
have a significant economic impact on a
substantial number of small entities. The
reporting burden affects payment card or-
ganizations and financial institutions that
issue payment cards. Most payment card
organizations and payment card issuers
are large businesses. To the extent that
small financial institutions have a report-
ing burden, the burden is expected to be
insignificant. Accordingly, a Regulatory
Flexibility Analysis is not required.
Pursuant to section 7805(f) of the In-
ternal Revenue Code, the notice of pro-
posed rulemaking preceding these regula-
tions was submitted to the Chief Counsel
for Advocacy of the Small Business Ad-
2004–31 I.R.B.
ministration for comment on its impact on
small business.
Drafting Information
The principal author of the regulations
is Donna Welch, Office of Associate Chief
Counsel (Procedure and Administration),
Administrative Provisions and Judicial
Practice Division. However, other per-
sonnel from the IRS and the Treasury
Department participated in the develop-
ment of the regulations.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 31, 301, and
602 are amended as follows:
PART 31—EMPLOYMENT TAXES
AND COLLECTION OF INCOME TAX
AT THE SOURCE
Paragraph 1. The authority citation for
part 31 is amended by removing the entry
for section 31.3406(j)–1T to read in part as
follows:
Authority: 26 U.S.C. 7805. * * *
Par. 2. Section 31.3406(g)–1 is
amended by adding paragraph (f) to read
as follows:
§31.3406(g)–1 Exceptions for payments
to certain payees and certain other
payments.
*****
(f) Special rule for certain payment
card transactions—(1) In general. No
withholding under section 3406 is re-
quired for a reportable payment made
through a payment card organization if
the payment is made on or after January
1, 2005, the organization is a Qualified
Payment Card Agent (QPCA), and—
(i) The payee is a qualified payee (as
defined in paragraph (f)(2)(vi) of this sec-
tion) with respect to the payment; or
(ii) The cardholder/payor made the pur-
chase to which the payment relates no later
than two months after the last date pre-
scribed under paragraph (f)(3) of this sec-
tion for furnishing the QPCA’s first no-
tification to the cardholder/payor that the
payee is not a qualified payee.
(2) Definitions—(i) Payment card de-
fined. For purposes of this section, a pay-
2004–31 I.R.B.
ment card is a card (or an account) is-
sued by a payment card organization, or
one of its members, affiliates, or licensees,
to a cardholder/payor which, upon presen-
tation to a merchant/payee, represents an
agreement of the cardholder to pay the
merchant through the payment card organ-
ization.
(ii) Payment card organization defined.
For purposes of this section, a payment
card organization is an entity that sets the
standards and provides the mechanism, ei-
ther directly or indirectly through mem-
bers, affiliates, or licensees, for effectu-
ating payment between a purchaser and a
merchant in a payment card transaction. A
payment card organization acting directly
or indirectly through its members, affili-
ates, or licensees generally provides such
a payment mechanism by issuing payment
cards, enrolling merchants as authorized
acceptors of payment cards for payment
for goods or services, and ensuring the
system conducts the transactions in accor-
dance with prescribed standards for pay-
ment card transactions.
(iii) Payment card transaction defined.
For purposes of this section, a payment
card transaction is a transaction in which
a cardholder/payor uses a payment card to
purchase goods or services and a merchant
agrees to accept a payment card as a means
of obtaining payment.
(iv) Cardholder/payor defined.
For purposes of this section, a card-
holder/payor is the person that agrees
to make payments through the payment
card organization. Thus, in the case of a
payment card issued to an employee of
a person that agrees to make payments
through the payment card organization,
the employer rather than the employee is
the cardholder/payor.
(v) Qualified Payment Card Agent
(QPCA) defined. For purposes of this
section, a Qualified Payment Card Agent
(QPCA) is a payment card organiza-
tion that has a current QPCA determina-
tion from the Internal Revenue Service
(IRS) under applicable procedures (see
§601.601(d)(2) of this chapter).
(vi) Qualified payee defined. For pur-
poses of this section, a payee is a qualified
payee with respect to a reportable payment
if—
(A) At the time the QPCA makes the
payment, the QPCA has obtained the
payee’s TIN and the payee’s TIN has been
116
validated through the IRS TIN Matching
Program; or
(B) The QPCA makes the payment dur-
ing the six-month period beginning on the
date on which the QPCA first makes a pay-
ment to the payee.
(3) Notification of payee status. In the
case of a payment to a payee other than
a qualified payee as defined in paragraph
(f)(2)(vi) of this section with respect to
the payment, the QPCA acting directly
or indirectly through its members, affili-
ates, or licensees must notify the payor that
the payee is not a qualified payee. The
notification must be furnished during the
four-month period beginning on the date
on which the QPCA makes the payment.
Notification may be provided in a quar-
terly or other regular report of payee data
to the cardholder/payor and may consist of
an asterisk, footnote, or other mark next to
the payee’s name, with the text of the no-
tification at the bottom of the page or at
the end of the list of payee data. Notifi-
cation by the QPCA that a payee is not a
qualified payee does not constitute notice
by the IRS that the payee’s TIN is incor-
rect for purposes of section 3406(a)(1)(B)
and §31.3406(d)–5.
(4) Time of payment. A QPCA that
makes reports to cardholders on the basis
of a calendar quarter or any shorter pe-
riod (the reporting period) may choose to
treat all payments made during the report-
ing period as being made on the last day
of the period for purposes of paragraphs
(f)(2)(vi) and (f)(3) of this section. If
the QPCA treats payments as being made
on the last day of a reporting period, the
six-month period in paragraph (f)(2)(vi) of
this section and the four-month period in
paragraph (f)(3) of this section are treated
as beginning on the first day of the report-
ing period in which the QPCA makes the
payment that would otherwise begin the
six-month or four-month period.
(5) Examples. The following exam-
ples illustrate the rules of this section. For
purposes of the examples, assume that Q
meets all requirements and fulfills all du-
ties necessary to obtain a QPCA determi-
nation from the IRS. The examples are as
follows:
Example 1. (i) Q, a QPCA, enrolls Merchant X
on January 20, 2005, to accept the Q payment card as
a means for obtaining payment. (The results in this
example are the same whether the acts attributed to Q
are performed by Q itself or by a member, affiliate, or
licensee of Q.) At the time of enrollment, Q obtains
August 2, 2004
Merchant X’s taxpayer identification number (TIN).
Merchant X is a sole proprietor engaged in the trade
or business of repairing automobiles and trucks. Q’s
first payment to Merchant X for purchases through
the payment card is made on January 31, 2005.
(ii) On March 1, 2005, Q issues a Q payment card
to Customer A to use for the purchase of goods or ser-
vices in the course of its trade or business from mer-
chants that accept the Q payment card. During 2005,
Customer A uses Q payment card to purchase repairs
to A’s vehicles from Merchant X on April 29, 2005,
July 29, 2005, and December 19, 2005. Q makes pay-
ments for the repairs on May 2, 2005, August 1, 2005,
and December 20, 2005. Q provides reports of payee
data to each of its cardholders, including Customer
th
A, on the 15 of April, July, October, and January
for the quarter ending on the last day of the preceding
month, but does not choose to treat payments as be-
ing made on the last day of the quarter for purposes
of paragraphs (f)(2)(vi) and (f)(3) of this section.
(iii) On March 15, 2005, Q attempts to validate
Merchant X’s name/TIN through the IRS TIN Match-
ing Program. On March 20, 2005, the IRS notifies
Q that the name/TIN furnished by Merchant X does
not match IRS data. On June 15, 2005, and Septem-
ber 15, 2005, Q makes further unsuccessful attempts
to validate Merchant X’s name/TIN through the IRS
TIN Matching Program.
(iv) Under paragraph (f)(2)(vi)(B) of this section,
Merchant X is treated as a qualified payee for the
six-month period beginning on January 31, 2005 (the
date of Q’s first payment to Merchant X), and ending
on July 30, 2005. Accordingly, the payment on May
2, 2005, is a payment to a qualified payee and, under
paragraph (f)(1)(i) of this section, is not subject to
backup withholding.
(v) Q has not validated Merchant X’s TIN at the
time of the payments on August 1, 2005, and Decem-
ber 20, 2005. Accordingly, under paragraph (f)(3) of
this section, Q must notify Customer A within four
months of each of these payments that Merchant X is
not a qualified payee with respect to the payments.
In the case of the August 1 payment, the notifica-
tion must be furnished no later than November 30,
2005. Q may provide the notification in its quarterly
report of payee data for the July-September quarter
furnished on October 15, 2005.
(vi) Although Merchant X is not a qualified payee
with respect to the payments on August 1, 2005, and
December 20, 2005, paragraph (f)(1)(ii) of this sec-
tion provides that backup withholding is not required
for purchases made no later than two months after
the last date prescribed for furnishing the first no-
tification that Merchant X is not a qualified payee.
The last date for furnishing the first notification is
November 30, 2005, and the two-month period ex-
pires on January 30, 2006. Because the payments
relate to purchases on July 29, 2005, and December
19, 2005, backup withholding is not required with re-
spect to either payment. Backup withholding may
be required with respect to any payment Customer
A makes through the Q payment card for purchases
from Merchant X after January 30, 2006, unless Q
has previously succeeded in validating Merchant X’s
TIN.
Example 2. (i) Assume the same facts as in ex-
ample (1) except that Q chooses to treat payments as
being made on the last day of the quarter for purposes
of paragraphs (f)(2)(vi) and (f)(3) of this section.
August 2, 2004
(ii) The payment Q makes on January 31, 2005, is
treated under paragraph (f)(4) of this section as being
made on March 31, 2005. Similarly, the payments
made on May 2, 2005, August 1, 2005, and December
20, 2005, are treated as being made on June 30, 2005,
September 30, 2005, and December 31, 2005.
(iii) Under paragraphs (f)(2)(vi)(B) and (f)(4)
of this section, Merchant X is treated as a qualified
payee for the six-month period beginning on January
1, 2005 (the beginning of the reporting period during
which Q makes the first payment to Merchant X), and
ending on June 30, 2005. Accordingly, the payment
treated as made on June 30, 2005, is a payment to a
qualified payee and, under paragraph (f)(1)(i) of this
section, is not subject to backup withholding.
(iv) Q has not validated Merchant X’s TIN at the
time of the payments that are treated as being made
on September 30, 2005, and December 31, 2005.
Accordingly, under paragraphs (f)(3) and (f)(4) of
this section, Q must notify Customer A within four
months of the beginning of each reporting period dur-
ing which Q makes these payments that Merchant X
is not a qualified payee with respect to the payments.
In the case of the September 30 payment, the noti-
fication must be furnished no later than October 31,
2005. Q may provide the notification in its quarterly
report of payee data for the July-September quarter
furnished on October 15, 2005.
(v) Although Merchant X is not a qualified payee
with respect to the payments that are treated as being
made on September 30, 2005, and December 31,
2005, paragraph (f)(1)(ii) of this section provides
that backup withholding is not required for purchases
made no later than two months after the last date
prescribed for furnishing the first notification that
Merchant X is not a qualified payee. The last date for
furnishing the first notification is October 31, 2005,
and the two-month period expires on December 31,
2005. Because the payments relate to purchases
on July 29, 2005, and December 19, 2005, backup
withholding is not required with respect to either
payment. Backup withholding may be required with
respect to any payment Customer A makes through
the Q payment card for purchases from Merchant X
after December 31, 2005, unless Q has previously
succeeded in validating Merchant X’s TIN.
§31.3406(j)–1T [Removed]
Par. 3. Section 31.3406(j)–1T is re-
moved.
Par. 4. Section 31.3406(j)–1 is
amended by revising paragraphs (a) and
(f) to read as follows:
§31.3406(j)–1 Taxpayer Identification
Number (TIN) matching program.
(a) The matching program. Under sec-
tion 3406(i), the Commissioner has the
authority to establish Taxpayer Identifica-
tion Number (TIN) matching programs.
The Commissioner may prescribe in a
revenue procedure (see §601.601(d)(2) of
this chapter) or other appropriate guidance
the scope and the terms and conditions
117
of participating in any TIN matching
program. In general, under a matching
program, prior to filing information re-
turns with respect to reportable payments
as defined in section 3406(b)(1), a payor
of those reportable payments who is enti-
tled to participate in the matching program
may contact the Internal Revenue Service
(IRS) with respect to the TIN furnished
by a payee who has received or is likely
to receive a reportable payment. The IRS
will inform the payor whether or not a
name/TIN combination furnished by the
payee matches a name/TIN combination
maintained in the data base utilized for
the particular matching program. For
purposes of this section, the term payor in-
cludes an agent designated by the payor to
participate in TIN matching on the payor’s
behalf.
*****
(f) Effective date. The last sentence in
paragraph (a) of this section is applicable
on January 31, 2003. All other provisions
of this section are applicable on and after
June 18, 1997.
PART 3O1—PROCEDURE AND
ADMINISTRATION
Par. 5. The authority citation for part
301 continues to read in part as follows:
Authority: 26 U.S.C. 7805. * * *
Par. 6. Section 301.6724–1 is amended
by:
1. Revising the introductory language
of paragraph (c)(6).
2. Adding paragraphs (e)(1)(vi)(H) and
(f)(5)(vii).
The revision and additions read as fol-
lows:
§301.6724–1 Reasonable cause.
*****
(c)* * *
(6) Actions of the payee or any other
person. In order to establish reasonable
cause under paragraph (c)(1) of this sec-
tion due to the actions of the payee or
any other person, such as a broker as de-
fined in section 6045(c) or a Qualified
Payment Card Agent (QPCA) as defined
in §31.3406(g)–1(f)(2)(v) of this chapter,
providing information with respect to the
return or payee statement, the filer must
show either—
*****
2004–31 I.R.B.
 (e) * * * (1) * * *
(vi) * * *
(H) In the case of information returns
required to be filed, and information state-
ments required to be furnished, after De-
cember 31, 2005, the filer—
(1) Satisfies the solicitation require-
ments of paragraphs (e)(1)(i) and (ii) of
this section with respect to a payment
made through a QPCA if the filer relies in
good faith on the QPCA to solicit, record,
validate, and furnish the payee’s TIN; and
(2) Satisfies the solicitation require-
ment of paragraph (e)(1)(iii) of this sec-
tion with respect to such a payment if, on
or before December 31 of the year im-
mediately succeeding the calendar year
in which the payment is made, the filer
undertakes a solicitation of the payee’s
TIN or receives from the QPCA a TIN
that the filer believes in good faith to be
the payee’s correct TIN.
CFR part or section where
identified and described
*****
31.3406(g)–1 ...........................................................
...........................................................
...........................................................
*****
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
Approved July 1, 2004.
Gregory Jenner,
Acting Assistant Secretary of the Treasury.
(Filed by the Office of the Federal Register on July 12, 2004,
8:45 a.m., and published in the issue of the Federal Register
for July 13, 2004, 69 F.R. 41938)
Section 6041.—Information
at Source
A revenue procedure provides an optional pro-
cedure that payors may use to determine whether
payment card transactions are reportable under sec-
tion 6041 or section 6041A and the regulations
thereunder. In addition, this procedure may be used
to determine whether payment card transactions are
reportable payments for purposes of the IRS TIN
Matching Program under section 3406 and the reg-
ulations thereunder. See Rev. Proc. 2004-43, page
124.
2004–31 I.R.B.
*****
(f) * * *
(5) * * *
(vii) In the case of information returns
required to be filed, and information state-
ments required to be furnished, after De-
cember 31, 2005, the filer—
(A) Satisfies the solicitation require-
ment of paragraph (f)(1)(i) of this section
with respect to a payment made through a
QPCA if the filer relies in good faith on
the QPCA to solicit, record, validate, and
furnish the payee’s TIN; and
(B) Satisfies the solicitation require-
ment of paragraph (f)(1)(ii) or (iii) of this
section, whichever is applicable, with re-
spect to such a payment if, after the date
the filer is notified that the account of the
payee contains an incorrect TIN and on
or before the date by which the applicable
requirement must be satisfied, the filer so-
licits the payee’s correct TIN in a manner
Section 6041A.—Returns
Regarding Payments of
Remuneration for Services
and Direct Sales
A revenue procedure provides an optional pro-
cedure that payors may use to determine whether
payment card transactions are reportable under sec-
tion 6041 or section 6041A and the regulations
thereunder. In addition, this procedure may be used
to determine whether payment card transactions are
reportable payments for purposes of the IRS TIN
Matching Program under section 3406 and the reg-
ulations thereunder. See Rev. Proc. 2004-43, page
124.
Section 6103.—Confi-
dentiality and Disclosure
of Returns and Return
Information
Disclosure of returns and return in-
formation. Rev. Rul. 54–379 concludes
that heirs at law, next of kin, or beneficia-
ries who are distributees of a person who
dies intestate under state law have a “ma-
118
that satisfies the applicable requirement
or receives from the QPCA a TIN that
the filer believes in good faith to be the
payee’s correct TIN.
*****
PART 602—OMB CONTROL
NUMBERS UNDER THE PAPERWORK
REDUCTION ACT
Par. 7. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 8. In §602.101, paragraph (b)
is amended by revising the entry for
31.3406(g)–1 in the table to read as fol-
lows:
§602.101 OMB Control numbers.
*****
(b) * * *
Current OMB
Control No.
1545–0096
1545–0112
1545–1819
terial interest” to receive the decedent’s
return information. The statute does not
clearly address the application of the “ma-
terial interest” standard in the context of
a taxpayer who dies intestate. Rev. Rul.
54–379 superseded.
Rev. Rul. 2004–68
ISSUE
Whether the heir at law or next of kin of
a decedent who dies intestate may inspect
the income tax return filed by or on behalf
of the decedent for the year prior to death.
FACTS
The decedent, a resident of State X,
died intestate (i.e., without a valid will).
The decedent had two brothers and two sis-
ters, and no other pre-deceased siblings.
Under applicable state law, these four sib-
lings are the decedent’s sole heirs at law
and next of kin, and each is entitled to
one-fourth of decedent’s estate. The four
August 2, 2004
siblings want to inspect the decedent’s in-
come tax return for the year prior to the
decedent’s death in order to identify and
locate assets owned by the decedent at the
time of the decedent’s death.
LAW AND ANALYSIS
Under I.R.C. § 6103(e)(3)(B), the re-
turn of a decedent shall, upon written re-
quest, be open to inspection by or disclo-
sure to any heir at law, next of kin, or ben-
eficiary under the will, of such decedent,
or a donee of property, but only if the Ser-
vice finds that such heir at law, next of kin,
beneficiary, or donee has a material inter-
est which will be affected by information
contained therein.
Generally, the Service has interpreted
the term “material interest” as an impor-
tant interest that is financial in nature. In
this case involving a taxpayer dying intes-
tate, the income tax return filed by or on
behalf of the decedent for the year prior
to death may disclose assets or informa-
tion materially affecting the distribution to
each distributee of the estate. Where the
heir at law or next of kin is a distributee,
under applicable state law, of the estate of
a decedent who dies intestate, such person
shall be considered as having a “material
interest” which will be affected by infor-
mation contained in the income tax return
filed by or on behalf of the decedent for the
year prior to death, within the meaning of
section 6103(e)(3)(B).
In addition to the written request for in-
spection or disclosure, the person request-
ing access under section 6103(e)(3)(B)
must provide the Service with (i) proof of
the date of death, place of death, and state
of decedent’s residence, to help determine
which state law is applicable and (ii) proof
of his or her relationship to the decedent,
including, but not limited to, a copy of
a birth certificate, baptismal certificate,
school record, or insurance designation.
The person requesting access also must
provide the Service with a written state-
ment, along with supporting documents, to
demonstrate that he or she has a material
interest that will be affected by informa-
tion contained in each requested return.
Evidence sufficient to establish the nature
and extent of the requester’s material in-
terest may include, but is not limited to,
a copy of the petition for probate or other
comparable pleading required to institute
August 2, 2004
the proceeding for the administration of
the decedent’s estate. The Service may
require additional information or docu-
mentation to determine the nature and
extent of the requester’s material interest
in the decedent’s return. In this case, upon
receipt of satisfactory evidence of (i) the
relationship to the decedent, (ii) the date
of death, the place of death, and the state
of decedent’s residence, and (iii) the dece-
dent’s intestacy, the Service shall disclose
to any of the decedent’s siblings the in-
come tax return filed by or on behalf of the
decedent for the year prior to decedent’s
death.
HOLDING
The income tax return of an intestate
decedent for the calendar year prior to
decedent’s death shall be open to inspec-
tion or disclosure to any heir at law or next
of kin who is a distributee, under applica-
ble state law, of the probate estate of the
decedent, and the existence of a material
interest of such a person that is affected by
information contained in that return will
be presumed. The Secretary may disclose
any other income tax returns of the dece-
dent, provided that such heir at law or next
of kin establishes to the satisfaction of
the Secretary that he or she has a material
interest which will be affected by informa-
tion contained in each requested return. If,
over time, the Secretary deems it prudent
to amend the material interest access pro-
cedures, individuals who request access to
the returns of an intestate decedent may be
required to meet additional requirements.
EFFECT ON OTHER REVENUE
RULINGS
This ruling supersedes Revenue Ruling
54–379.
PROSPECTIVE APPLICATION
N/A
DRAFTING INFORMATION
The principal author of this revenue rul-
ing is Charles B. Christopher of the Of-
fice of Associate Chief Counsel (Proce-
dure and Administration). For further in-
formation regarding this revenue ruling,
you may contact Charles B. Christopher at
(202) 622–4580 (not a toll-free call).
119
Section 6724.—Waiver;
Definitions and Special
Rules
Final regulations relating to information report-
ing requirements, information penalties, and backup
withholding for payment card transactions. See T.D.
9136, page 112.
A revenue procedure establishes a procedure for a
payment card organization to request a determination
that it is a Qualified Payment Card Agent (QPCA)
for purposes of sections 3406 and 6724 and the reg-
ulations thereunder. See Rev. Proc. 2004-42, page
121.
Section 7701.—Definitions
26 CFR 301.7701–1: Classification of organizations
for federal tax purposes.
(Also: § 301.7701–2, 301.7701–3.)
Disregarded entities. This ruling con-
cludes that, if an eligible entity has two
owners under local law, but one of the
owners is, for federal tax purposes, disre-
garded as an entity separate from the other
owner of the eligible entity, then the eligi-
ble entity cannot be classified as a partner-
ship and is either disregarded as an entity
separate from its owner or an association
taxable as a corporation.
Rev. Rul. 2004–77
ISSUE
How is an eligible entity (as defined
in § 301.7701–3(a) of the Procedure and
Administration Regulations) classified for
federal tax purposes if the entity has two
members under local law, but one of the
members of the eligible entity is disre-
garded as an entity separate from the other
member of the eligible entity for federal
tax purposes?
FACTS
Situation 1. X, a domestic corpora-
tion, is the sole owner of L, a domestic
limited liability company (LLC). Under
§ 301.7701–3(b)(1), L is disregarded as an
entity separate from its owner, X. L and X
are the only members under local law of
P, a state law limited partnership or LLC.
There are no other constructive or benefi-
cial owners of P other than L and X. L and
2004–31 I.R.B.
P are eligible entities that do not elect un-
der § 301.7701–3(c) to be treated as asso-
ciations for federal tax purposes.
Situation 2. X is an entity that
is classified as a corporation under
§ 301.7701–2(b). X is the sole owner
of L, a foreign eligible entity. Under
§ 301.7701–3(c), L has elected to be dis-
regarded as an entity separate from its
owner. L and X are the only members
under local law of P, a foreign eligible
entity. There are no other constructive or
beneficial owners of P other than L and X.
LAW AND ANALYSIS
Section 7701(a)(2) of the Internal Rev-
enue Code provides that the term part-
nership includes a syndicate, group, pool,
joint venture, or other unincorporated or-
ganization through or by means of which
any business, financial operation, or ven-
ture is carried on, and which is not a trust,
estate, or corporation.
Section 301.7701–1(a)(1) provides that
whether an organization is an entity sep-
arate from its owners for federal tax pur-
poses is a matter of federal tax law and
does not depend on whether the organiza-
tion is recognized as an entity under local
law.
Section 301.7701–2(a) provides that a
business entity is any entity recognized for
federal tax purposes (including an entity
with a single owner that may be disre-
garded as an entity separate from its owner
under § 301.7701–3) that is not properly
classified as a trust under § 301.7701–4 or
otherwise subject to special treatment un-
der the Code. A business entity with two
or more owners is classified for federal tax
purposes as either a corporation or a part-
nership. A business entity with only one
owner is classified as a corporation or is
disregarded; if the entity is disregarded, its
activities are treated in the same manner as
2004–31 I.R.B.
a sole proprietorship, branch, or division of
the owner.
Section 301.7701–2(c)(1) provides
that, for federal tax purposes, the term
“partnership” means a business entity that
is not a corporation under § 301.7701–2(b)
and that has at least two owners.
Section 301.7701–2(c)(2)(i) provides,
in general, that a business entity that has
a single owner and is not a corporation un-
der § 301.7701–2(b) is disregarded as an
entity separate from its owner.
Section 301.7701–3(a) provides that a
business entity that is not classified as a
corporation under § 301.7701–2(b)(1), (3),
(4), (5), (6), (7), or (8) (an eligible entity)
can elect its classification for federal tax
purposes. An eligible entity with at least
two owners can elect to be classified as
either an association (and thus a corpora-
tion under § 301.7701–2(b)(2)) or a part-
nership, and an eligible entity with a sin-
gle owner can elect to be classified as an
association or to be disregarded as an en-
tity separate from its owner.
Section 301.7701–3(b)(1) provides
generally that in the absence of an elec-
tion otherwise, a domestic eligible entity
is (a) a partnership if it has at least two
members, or (b) disregarded as an entity
separate from its owner if it has a single
owner.
Section 301.7701–3(b)(2) provides
generally that, in the absence of an elec-
tion otherwise, a foreign eligible entity
is (a) a partnership if it has two or more
owners and at least one owner does not
have limited liability, (b) an association if
all its owners have limited liability, or (c)
disregarded as an entity separate from its
owner if it has a single owner that does not
have limited liability.
Situation 1. Under § 301.7701–2(c)(2),
L is disregarded as an entity separate from
its owner, X, and its activities are treated
in the same manner as a branch or division
120
of X. Because L is disregarded as an en-
tity separate from X, X is treated as own-
ing all of the interests in P. P is a domes-
tic entity, with only one owner for fed-
eral tax purposes, that has not made an
election to be classified as an association
taxable as a corporation. Because P has
only one owner for federal tax purposes, P
cannot be classified as a partnership under
§ 7701(a)(2). For federal tax purposes, P
is disregarded as an entity separate from its
owner.
Situation 2. Under § 301.7701–3(c), L
is disregarded as an entity separate from
its owner, X, and its activities are treated
in the same manner as a branch or division
of X. Because L is disregarded as an entity
separate from X, X is treated as owning
all of the interests in P. Because P has
only one owner for federal tax purposes, P
cannot be classified as a partnership under
§ 7701(a)(2). For federal tax purposes, P
is either disregarded as an entity separate
from its owner or an association taxable as
a corporation.
HOLDING
If an eligible entity has two members
under local law, but one of the members
of the eligible entity is, for federal tax pur-
poses, disregarded as an entity separate
from the other member of the eligible en-
tity, then the eligible entity cannot be clas-
sified as a partnership and is either disre-
garded as an entity separate from its owner
or an association taxable as a corporation.
DRAFTING INFORMATION
The principal author of this revenue rul-
ing is Jason T. Smyczek of the Office of the
Associate Chief Counsel (Passthroughs
and Special Industries). For further in-
formation regarding this revenue ruling,
contact Mr. Smyczek at (202) 622–3050
(not a toll-free call).
August 2, 2004
Part III. Administrative, Procedural, and Miscellaneous
26 CFR 31.3406(g)–1(f).
(Also: 26 CFR 301.6724–1.)
Qualified Payment Card Agent
Determination
Rev. Proc. 2004–42
SECTION 1. PURPOSE
This revenue procedure establishes a
procedure for a payment card organization
to request a determination that it is a Qual-
ified Payment Card Agent (QPCA) for
purposes of section 3406 and section 6724
of the Internal Revenue Code. A QPCA
may act on behalf of cardholder/payors
in soliciting, collecting, and validating
merchants’ names, taxpayer identification
numbers (TINs) and corporate status (col-
lectively referred to as merchant/payee
data) and on behalf of merchant/pay-
ees in furnishing merchant/payee data
to cardholder/payors. The Regulations
on Procedure and Administration relieve
cardholder/payors from certain TIN solic-
itation requirements for payments made
through a QPCA. The Employment Tax
Regulations provide a limited exception
from the backup withholding require-
ments for payments made to certain mer-
chant/payees through a QPCA.
SECTION 2 . BACKGROUND
.01 Payment card transactions. A pay-
ment card transaction is a transaction in
which a cardholder/payor uses a payment
card (as defined in section 4.04 of this rev-
enue procedure) to purchase goods or ser-
vices and a merchant agrees to accept the
payment card as a means of obtaining pay-
ment. A payment card organization (as de-
fined in section 4.05 of this revenue proce-
dure) sets the standards and provides the
mechanism for effecting the payment.
.02 Reporting requirements. In general,
section 6041 requires a person engaged in
a trade or business and making a payment
in the course of the trade or business of
$600 or more during a calendar year of
fixed or determinable income to file an
information return with the Internal Rev-
enue Service (IRS) and to furnish an in-
formation statement to the payee. Section
August 2, 2004
1.6041–3(p) of the Income Tax Regula-
tions provides exceptions to these require-
ments, including, for example, exceptions
for payments made to a payee that is a cor-
poration.
Section 6109(a)(2) provides that any
payee, with respect to whom a return is
required to be made by another person or
whose identifying number is required to
be shown on a return of another person,
must furnish to the other person the identi-
fying number prescribed for securing the
proper identification of the payee. Sec-
tion 6109(a)(3) provides that any person
required to make a return with respect to
a payee must ask the payee for the iden-
tifying number prescribed for securing the
proper identification of the payee and must
include that number in the return.
.03 Backup withholding. Section
3406(a)(1) requires a payor to withhold on
reportable payments (as defined in section
3406(b)(1)) if the payee does not provide a
TIN to the payor in the manner required or
if the Secretary notifies the payor that the
TIN furnished by the payee is incorrect
or in certain other circumstances. Sec-
tion 3406(i) provides that the Secretary
shall prescribe the regulations necessary
or appropriate to carry out the purposes of
section 3406.
Section 31.3406(j)–1 of the Employ-
ment Tax Regulations provides that the
Commissioner has the authority to estab-
lish TIN matching programs through rev-
enue procedures or other appropriate guid-
ance. Under the regulations, a payor or a
payor’s authorized agent may participate
in a TIN matching program that permits
the payor or authorized agent to contact
the IRS with respect to the TIN furnished
by a payee before the payor files an in-
formation return for reportable payments
to the payee. The regulations further pro-
vide that the IRS will inform the payor or
the payor’s authorized agent whether or
not the name/TIN combination furnished
by the payee matches a name/TIN com-
bination maintained for the TIN match-
ing program. Revenue Procedure 2003–9,
2003–1 C.B. 516, describes the procedures
for participation in the IRS TIN Matching
Program.
Section 31.3406(g)–1(f) of the Em-
ployment Tax Regulations provides that
the backup withholding requirements of
121
section 3406 do not apply to payments
made through a QPCA if the payments
are made to a qualified payee or during a
grace period. Section 31.3406(g)–1(f)(3)
requires a QPCA to notify the card-
holder/payor when payments are made
to a merchant/payee who is not a qualified
payee.
.04 Information reporting penalties
and waivers for reasonable cause. Section
6721 provides that a payor may be subject
to a penalty for failure to file a complete
and correct information return. Section
6722 provides that a payor may be subject
to a penalty for failure to furnish a com-
plete and correct information statement to
a payee. A failure subject to the section
6721 and section 6722 penalties includes
a failure to include correct payee TINs.
Section 6724 provides that the penal-
ties under section 6721 and section 6722
may be waived if the filer shows that the
failure was due to reasonable cause and
was not due to willful neglect. Section
301.6724–1(e)(1)(vi)(H) and (f)(5)(vii) of
the Regulations on Procedure and Admin-
istration provide that a cardholder/payor in
a payment card transaction may establish
reasonable cause based on its reliance on a
QPCA.
SECTION 3. SCOPE
This revenue procedure applies to pay-
ment card organizations acting or seeking
to act on behalf of cardholder/payors
in soliciting, collecting, and validat-
ing merchant/payee data and on behalf
of merchant/payees in furnishing mer-
chant/payee data to cardholder/payors.
SECTION 4. DEFINITIONS AND
RELATED RULES
The following definitions and related
rules apply solely for purposes of this rev-
enue procedure:
.01 Cardholder. A cardholder (or card-
holder/payor) is the person that agrees to
make the payment through the payment
card organization. Thus, in the case of
a payment card issued to an employee of
a person that agrees to make payments
through the payment card organization, the
employer rather than the employee is the
cardholder/payor.
2004–31 I.R.B.
 .02 Merchant. A merchant (or mer-
chant/payee) is a person that has agreed
to accept the payment card issued by the
payment card organization as payment for
goods and services.
.03 Merchant/payee data. Mer-
chant/payee data includes the mer-
chant/payee’s name, corporate status,
and TIN, and whether the TIN has been
validated through participation in the IRS
TIN Matching Program.
.04 Payment card. A payment card
is a card (or an account) issued by a
payment card organization to a card-
holder/payor which, upon presentation
to a merchant/payee, represents an agree-
ment of the cardholder to pay the merchant
through the payment card organization.
.05 Payment card organization. A pay-
ment card organization is an entity that sets
the standards and provides the mechanism
for effectuating payment between a pur-
chaser and a merchant in a payment card
transaction. A payment card organization
generally provides this payment mecha-
nism by issuing payment cards, enrolling
merchants as authorized acceptors of pay-
ment cards for payment for goods or ser-
vices, and ensuring the system conducts
the transactions in accordance with pre-
scribed standards. In any case in which a
payment card organization acts through a
member, affiliate, or licensee, the action is
treated for purposes of this revenue proce-
dure (including this definition) as an action
by a payment card organization.
.06 Qualified Payment Card Agent
(QPCA). A QPCA is a payment card
organization that has a current QPCA de-
termination from the IRS. A person acting
in its capacity as a QPCA does not act as
an agent of the IRS, nor does it have the
authority to hold itself out as an agent of
the IRS.
SECTION 5. APPLICATION AND
REQUIREMENTS FOR QPCA
DETERMINATION
.01 Where to apply for QPCA determi-
nation. A person authorized to act on be-
half of a payment card organization may
submit a written request for a QPCA de-
termination to the following address:
2004–31 I.R.B.
Internal Revenue Service
1601 Market Street
20th Floor
ATTN: TIN Matching Coordinator
S:C:CP:F&CC:SCDM
Philadelphia, PA 19107
.02 Content of QPCA application. A
payment card organization requesting a
QPCA determination must include the
following in its application:
(1) The name, address, and employer
identification number of the payment card
organization and a description of its busi-
ness.
(2) The name of the department or of-
fice of the payment card organization that
will serve as the information contact.
(3) The name of the department or the
names and titles of the officers or employ-
ees that will be responsible for the perfor-
mance of the TIN solicitation activities de-
scribed in section 6.
(4) A list of the systems, business lines,
or card product lines or levels that will be
covered by the TIN solicitation activities
described in section 6 and that will be cov-
ered by a QPCA determination.
(5) An explanation of the account open-
ing procedures and documents the pay-
ment card organization uses, or requires its
members, affiliates, or licensees to use, to
establish merchant account relationships
related to the payment card organization’s
activities as a QPCA.
(6) The approximate number and the
type of merchants (individuals, corpora-
tions, etc.) enrolled by the payment card
organization.
(7) An explanation of the payment card
organization’s systems and controls re-
lated to the payment card organization’s
activities as a QPCA for—
(a) Obtaining merchant/payee data (in-
cluding merchant/payee data provided by
reputable third-party sources);
(b) Validating the accuracy of the mer-
chant/payee data;
(c) Ensuring the accuracy and reliability
of the merchant/payee data;
(d) Maintaining the merchant/payee
data; and
(e) Supplying the merchant/payee data
to the cardholder/payor.
.03 Requirements for QPCA determina-
tion. A payment card organization must
meet the following requirements to obtain
a QPCA determination:
122
(1) Authorization to act on behalf of
cardholder/payors and on behalf of mer-
chant/payees.
(a) The payment card organization must
establish that cardholder/payors have au-
thorized it or its members, affiliates, or li-
censees to act on their behalf in solicit-
ing, collecting, and validating merchants’
names and TINs and to assist the cardhold-
ers in meeting their information reporting
obligations under section 6041 and sec-
tion 6041A. The payment card organiza-
tion must also establish that merchant/pay-
ees have authorized it or its members, af-
filiates, or licensees to act on their be-
half in furnishing their names and TINs
to cardholders and to assist the merchants
in meeting their obligations under section
6109(a)(2). To satisfy these requirements,
the payment card organization must pro-
vide the written notice described in sec-
tion 5.03(1)(b) to each cardholder/payor
and must provide the written notice de-
scribed in section 5.03(1)(c) to each mer-
chant/payee.
(b) The text of the written notice pro-
vided to cardholder/payors must be in bold
and conspicuous type, and the notice must
include the legend: “Important Tax and
Privacy Materials.” The notice must state:
As a cardholder, you may engage in
transactions with merchants for which
you may be required to file an informa-
tion return with the Internal Revenue
Service. If you are required to file an
information return with the Internal
Revenue Service reporting a transac-
tion, you must include the amount of
the payment, the merchant’s name, and
the merchant’s taxpayer identification
number. To assist you in fulfilling these
potential information reporting require-
ments, [insert name of payment card
organization] has received [is seeking]
approval from the Internal Revenue
Service to act on your behalf, and on
behalf of merchants, to solicit, furnish,
and validate the merchants’ taxpayer
identification numbers. A merchant’s
taxpayer identification number and
other merchant data may be provided
to you through [insert name of issuer].
If you accept the merchant data service,
please be advised that you must main-
tain the confidentiality of the merchant
data provided to you and that you may
use it only for purposes of backup with-
August 2, 2004
 holding and filing information returns
with the Internal Revenue Service.
You may decline this service. If you
do not want [insert name of card organ-
ization] to provide this service to you,
you must complete the enclosed form
and return it to [insert name of issuer]
in the enclosed envelope.
For more information, contact [in-
sert contact name and phone number.]
The notice may be included in the an-
nual (or periodic) agreement, or amend-
ments thereto, between the payment card
organization and the cardholder or in a
separate document. The outside of the
envelope in which the written notice is
mailed must contain, in bold and conspic-
uous type, the legend: “Important Tax and
Privacy Materials Enclosed.”
(c) The text of the written notice pro-
vided to merchant/payees must be in bold
and conspicuous type, and the notice must
include the legend: “Important Tax and
Privacy Materials.” The notice must state:
As a merchant, you may engage in
transactions with cardholders for which
cardholders may be required to file an
information return with the Internal
Revenue Service. If a cardholder is
required to file an information return
reporting a transaction with you to the
Internal Revenue Service, the card-
holder must include the amount of the
payment, your name, and your taxpayer
identification number. To facilitate the
exchange of information between you
and cardholders, [insert name of pay-
ment card organization] has received
[is seeking] approval from the Internal
Revenue Service to act on your behalf,
and on behalf of cardholders, to solicit,
furnish, and validate your taxpayer
identification number.
If you accept this service, your name
and your taxpayer identification num-
ber will be submitted to the Internal
Revenue Service for validation against
the Internal Revenue Service taxpayer
identification number database, and
your name, taxpayer identification
number, and corporate status may be
provided to cardholders. Please be ad-
vised that if you accept this service,
[insert name of payment card organi-
zation] may request that you provide
your taxpayer identification number to
it or may seek to obtain your taxpayer
August 2, 2004
identification number from a reputable
third-party source.
Please be aware that [insert name of
payment card organization] has advised
cardholders who may receive you name
and taxpayer identification number that
they must maintain the confidentiality
of your information and may use it only
for purposes of backup withholding and
filing information returns with the In-
ternal Revenue Service.
You may decline this service. If
you do not want [insert name of pay-
ment card organization] to validate your
name and taxpayer information number
or to provide your name, taxpayer in-
formation number, and corporate sta-
tus to cardholders, you should discon-
tinue accepting the [insert name of pay-
ment card] as a means of obtaining pay-
ment. If you continue to accept the [in-
sert name of payment card] as a means
for obtaining payment after [insert 60
days after date of notice] you will be
deemed to have agreed to this sharing
of information.
For more information, contact [in-
sert contact name and phone number.]
The notice may be included in the annual
(or periodic) agreement, or amendments
thereto, between the payment card organ-
ization and the merchant or in a separate
document. The outside of the envelope
in which the written notice is mailed must
contain, in bold and conspicuous type, the
legend: “Important Tax and Privacy Mate-
rials Enclosed.”
(2) TIN solicitation activities. The pay-
ment card organization must establish that
it has undertaken, or demonstrate that it
will undertake, the TIN solicitation activi-
ties described in section 6.
(3) Reliability of merchant/payee data.
After obtaining the authorizations required
by section 5.03(1), the payment card or-
ganization must participate in the IRS TIN
Matching Program and must demonstrate,
based on the TIN matching results, that
its merchant/payee data is sufficiently re-
liable.
SECTION 6. TIN SOLICITATION
ACTIVITIES
.01 TIN solicitation methods. A
QPCA must solicit merchant/payee
TINs in a manner described in sec-
123
tion 301.6724–1(e)(1)(i) of the Regu-
lations on Procedure and Administra-
tion. Alternatively, a QPCA may obtain
merchant/payee TINs from a reputable
third-party source.
.02 Notification and disclosure re-
quirements. A QPCA must give each
merchant/payee for which it acts as agent
the written notice described in section
5.03(1)(c) and must give each card-
holder/payor for which it acts as agent
the written notice described in 5.03(1)(b).
In addition, a QPCA must give written
notice of its status as a QPCA, and of
any change in that status, to any member,
affiliate, or licensee that issues payment
cards, as well as to the merchant/payees
and cardholder/payors for which it acts as
agent.
.03 TIN Matching participation. A
QPCA must participate in the IRS TIN
Matching Program and must match its
merchant/payee data relating to reportable
payments with IRS within three months af-
ter obtaining the merchant/payee’s TIN. A
QPCA may seek to cure merchant/payee
data that has not previously been val-
idated through the IRS TIN Matching
Program. The QPCA must transmit only
merchant/payee data that has not previ-
ously been validated through IRS TIN
Matching.
.04 Providing merchant/payee data
to cardholders. The QPCA must provide
cardholder/payors with a report containing
merchant/payee data within four months
of the date on which the QPCA makes
the payment. The report may be provided
in a quarterly or other regular report of
merchant/payee data that includes the
merchant/payee’s name, corporate status,
TIN, and whether the TIN has been vali-
dated through participation in the IRS TIN
Matching Program. A QPCA must furnish
the report containing merchant/payee data
for transactions occurring on or before
December 31 of the calendar year no later
than January 15 of the following calendar
year.
SECTION 7. OTHER REQUIREMENTS
.01 Availability of records. A pay-
ment card organization and its members,
affiliates, and licensees must respond to
any reasonable IRS request for inspection
of any books and records that relate to
the operation of TIN solicitation activ-
2004–31 I.R.B.
ity, including, but not limited to, reports,
memoranda, budgets, and computer print-
outs. The payment card organization and
its members, affiliates, and licensees must
allow the IRS reasonable access to the
merchant/payee TIN data system, includ-
ing instruction manuals describing the
system.
.02 Change in information. The QPCA
must promptly notify the IRS of any
change in the information described in
section 5.
.03 Confidentiality of information.
For purposes of this revenue procedure,
the payment card organization and its
members, affiliates, and licensees must
maintain the confidentiality of informa-
tion obtained through the TIN solicitation
activities in accordance with the require-
ments of section 31.3406(f)–1 of the
Employment Tax Regulations. Except
as permitted under section 31.3406(f)–1,
the payment card organization and its
members, affiliates, and licensees may
not disclose any merchant/payee infor-
mation to any person other than the card-
holder/payor without prior written consent
of the merchant/payee. The IRS will treat
all information provided by a QPCA as re-
turn information that is confidential under
section 6103.
SECTION 8. TERM, RENEWALS, AND
TERMINATION
.01 Term and renewal. In general, a
QPCA determination will be effective for
five years from the date of the determi-
nation. A QPCA may request a renewal
of the QPCA determination by submitting
an application for renewal to the IRS no
earlier than 12 months and no later than
three months before the expiration of the
five-year term. In the application for re-
newal, the QPCA must report any change
in the information in the original applica-
tion. Before renewal of the determination,
the IRS may review the QPCA’s systems.
In addition, the QPCA must demonstrate
that the merchant/payee data continues to
be reliable. The application for renewal
must include the results from participation
in the IRS TIN Matching Program during
the current five-year term. The IRS will
make every effort to issue a decision on a
renewal application at least 30 days before
the expiration of the current five-year term.
In the event that the IRS does not issue a
2004–31 I.R.B.
decision on a timely renewal application
before the expiration of the existing QPCA
determination, the determination will re-
main in effect until the IRS issues a deci-
sion on the renewal application.
.02 Revocation of determination. The
IRS may revoke a QPCA determination
before the expiration of its five-year term
if the IRS determines, based on the re-
sults of the QPCA’s participation in the
IRS TIN Matching Program, that the mer-
chant/payee data is not reliable or if the
payment card organization fails to meet
any of the requirements in section 5, 6, or
7. A QPCA may terminate its status as a
QPCA upon 60 days written notice to the
IRS.
SECTION 9. EFFECTIVE DATE
This revenue procedure is effective July
14, 2004.
SECTION 10. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Donna Welch of the Office of
Associate Chief Counsel (Procedure and
Administration). For further information
regarding this revenue procedure, con-
tact Ms. Welch at (202) 622–4910 (not a
toll-free call).
26 CFR 1.6041–1: Return of information as to pay-
ments of $600 or more.
(Also: 26 CFR 1.6041A.)
Merchant Category Codes
to Determine Reportable
Payment Card Transactions
Rev. Proc. 2004–43
SECTION 1. PURPOSE
This revenue procedure provides an op-
tional procedure that payors may use in
determining whether payment card trans-
actions are reportable under section 6041
or section 6041A of the Internal Revenue
Code. In addition, payors, or their autho-
rized agents, may use this optional pro-
cedure in determining whether payment
card transactions are reportable payments
for purposes of the Internal Revenue Ser-
124
vice TIN Matching Program under section
3406.
In general, this revenue procedure clas-
sifies businesses by Merchant Category
Codes (MCCs) according to whether they
predominantly furnish services (for which
payments are reportable) or predominantly
provide goods (for which payments are not
reportable). A payment card organization
may assign MCCs, or equivalent Industry
Codes, to merchant/payees that accept its
payment cards and notify cardholder/pay-
ors that use its payment card of the MCC
or equivalent Industry Code assigned to a
merchant/payee. A cardholder/payor may
then rely on the MCC or equivalent In-
dustry Code assigned to a merchant/payee
in determining whether a payment card
transaction with that merchant/payee is
subject to reporting under section 6041 or
section 6041A.
SECTION 2. BACKGROUND
.01 Reporting requirements under sec-
tions 6041 and 6041A. If a person is
engaged in a trade or business and, in
the course of that trade or business, pays
any person $600 or more of rent, salaries,
wages, premiums, annuities, compensa-
tion, remunerations, emoluments, or other
fixed or determinable gains, profits, and
income during a calendar year, section
6041 generally requires the payor to file
an information return with the Internal
Revenue Service (Service) and to furnish
an information statement to the payee.
Section 1.6041–3(c) of the Income
Tax Regulations provides an exception to
reporting for payments for merchandise,
telegrams, telephone, freight, storage and
similar charges. Section 1.6041–3(p)(1)
provides an exception to reporting for pay-
ments made to a corporation, unless the
corporation is engaged in providing medi-
cal and health care services or is engaged
in the billing and collecting of payments
in respect to providing medical and health
care services. The same provision also
provides that reporting is not required for
payments made to a hospital or extended
care facility that is a tax-exempt organiza-
tion described in section 501(c)(3) or to a
hospital or extended care facility owned
and operated by the United States, a State,
the District of Columbia, a possession of
the United States, or a political subdivi-
sion, agency or instrumentality of any of
August 2, 2004
the foregoing. Section 1.6041–3(p)(2)
provides that reporting is not required
for payments to an organization exempt
from taxation under section 501(a) or
an individual retirement plan. Section
1.6041–3(p)(3) provides that reporting is
not required for payments made to the
United States. Section 1.6041–3(p)(4)
provides that reporting is not required for
payments made to a State, the District
of Columbia, a possession of the United
States, or any political subdivision of the
foregoing.
If a person is engaged in a trade or busi-
ness and, in the course of that trade or
business, pays any person $600 or more
for services during a calendar year, section
6041A(a) generally requires the payor to
file an information return with the Service
and to furnish an information statement to
the service provider. In general, the excep-
tions to reporting under section 6041 apply
to reporting under section 6041A. How-
ever, section 6041A(d)(3) provides that re-
porting is generally required for payments
made by a Federal executive agency to a
corporation.
Revenue Ruling 81–232, 1981–2 C.B.
231, involved an insurance company mak-
ing payments to an automobile repair shop
for the repair of an insured automobile.
The repair contract required payment of
$300 for labor and $700 for parts. The rul-
ing held that the entire payment was re-
portable under section 6041 because the
portion of the payment attributable to parts
was merely incidental to the obligation to
repair the automobile. The ruling further
held that no part of the payment was ex-
cepted from the reporting requirements of
section 6041 as a payment of a bill for mer-
chandise.
.02 Payment card transactions. A pay-
ment card transaction is a transaction in
which a cardholder/payor uses a payment
card (as defined in section 4.05 of this rev-
enue procedure) to purchase goods or ser-
vices and a merchant agrees to accept the
payment card as a means of obtaining pay-
ment. A payment card organization (as de-
fined in section 4.06 of this revenue proce-
dure) sets the standards and provides the
mechanism for effecting the payment.
SECTION 3. SCOPE.
This revenue procedure applies to pay-
ment card organizations and their mem-
August 2, 2004
bers, affiliates, and licensees and to card-
holder/payors that purchase goods or ser-
vices in payment card transactions. In
addition, cardholder/payors, or their au-
thorized agents, will be allowed to rely
on MCCs or equivalent Industry Codes
for purposes of TIN matching with re-
spect to reportable payments as defined in
section 3406(b). Currently, the IRS TIN
Matching Program is available only for
certain reportable payments as defined in
section 3406(b), including reportable pay-
ments under sections 6041 and 6041A.
SECTION 4. DEFINITIONS
For purposes of this revenue procedure,
the terms listed below are defined and ap-
plied as follows:
.01 Cardholder. A cardholder (or card-
holder/payor) is the person that agrees to
make the payment through the payment
card organization. Thus, in the case of
a payment card issued to an employee of
a person that agrees to make payments
through the payment card organization, the
employer rather than the employee is the
cardholder.
.02 Merchant. A merchant (or mer-
chant/payee) is a payee that has agreed
to accept the payment card issued by the
payment card organization as payment for
goods and services.
.03 Merchant Category Code. A Mer-
chant Category Code (MCC) is a classifi-
cation code that is assigned by a payment
card organization to a merchant/payee.
The payment card organization assigns
the merchant a particular code based on
the predominant business activity of the
merchant.
.04 Industry Code. An Industry Code is
the number that corresponds to, and iden-
tifies, a merchant in the same business as a
merchant assigned a particular MCC.
.05 Payment Card. A payment card
is a card (or an account) issued by a
payment card organization to a card-
holder/payor, which upon presentation
to a merchant/payee, represents an agree-
ment of the cardholder to pay the merchant
through the payment card organization.
.06 Payment Card Organization. A
payment card organization is an entity that
sets the standards and provides the mech-
anism for effectuating payment between
a purchaser and a merchant in a payment
card transaction. A payment card organ-
125
ization generally provides the payment
mechanism by issuing payment cards, en-
rolling merchants as authorized acceptors
of payment cards for payment for goods
or services, and ensuring the system con-
ducts the transactions in accordance with
prescribed standards. In any case in which
a payment card organization acts through
a member, affiliate, or licensee, the ac-
tion is treated for purposes of this revenue
procedure (including this definition) as an
action by the payment card organization.
.07 Payment Card Transaction. A pay-
ment card transaction is a transaction in
which a cardholder/payor uses a payment
card (as defined in section 4.05 of this rev-
enue procedure) to purchase goods or ser-
vices, and a merchant agrees to accept a
payment card as a means of obtaining pay-
ment.
SECTION 5. APPLICATION
.01 Payment Card Organizations. A
payment card organization may assign
MCCs, or equivalent Industry Codes,
to merchant/payees and notify card-
holder/payors of the MCCs or equivalent
Industry Codes assigned to merchant/pay-
ees. If the MCC or equivalent Industry
Code assigned to a merchant/payee is not
listed in section 5.03 (an unlisted code)
and the payment card organization deter-
mines that merchants within the assigned
code are similar to merchants within an
MCC or equivalent Industry Code that is
listed (a listed code), the payment card
organization may notify cardholder/pay-
ors that they may treat payments to the
merchant in the same manner as payments
to merchants within the listed code. If the
payment card organization determines that
merchants within the assigned code are
not similar to merchants within any listed
code, it should notify cardholder/payors
that the treatment of payments to the mer-
chant depends on whether, under the facts
and circumstances, information reporting
is required with respect to the payments.
The payment card organization and its
members, affiliates, and licensees must
exercise due diligence in verifying the
type of business that a merchant conducts.
In addition, the payment card organization
and its members, affiliates, and licensees
must exercise reasonable business judg-
ment in assigning MCCs or equivalent In-
dustry Codes and in determining whether
2004–31 I.R.B.
merchants within an unlisted code are
similar to merchants within a listed code.
If the Service notifies the payment
card organization that the MCC or equiv-
alent Industry Code assigned to a mer-
chant/payee is incorrect, this revenue
procedure does not apply to payment card
transactions with the merchant/payee oc-
curring more than 60 days after the date
of the notification unless the payment
card organization has assigned the mer-
chant/payee a new MCC or equivalent
Industry Code that is satisfactory to the
Service and notified cardholder/payors of
the correction. If the payment card organ-
ization fails to assign the merchant/payee
a new MCC or equivalent Industry Code
that is satisfactory to the Service and notify
cardholder/payors of the correction during
the 60-day period following the date of the
notification that a merchant/payee MCC
or equivalent Industry Code is incorrect,
the payment card organization must no-
tify cardholder/payors before the end of
the period that they may no longer rely
on the MCC or equivalent Industry Code
assigned to the merchant/payee. Simi-
lar procedures apply if the payment card
organization determines that merchants
within the unlisted code assigned to a
merchant/payee are similar to merchants
within a listed code and the Service no-
tifies the payment card organization that
this determination is incorrect.
MCC
0742 Veterinary Services
0763 Agricultural Cooperative
0780 Landscaping Services
1520 General Contractors
1711 Heating, Plumbing, A/C
1731 Electrical Contractors
1740 Masonry, Stonework, and Plaster
1750 Carpentry Contractors
1761 Roofing/Siding, Sheet Metal
1771 Concrete Work Contractors
1799 Special Trade Contractors
2741 Miscellaneous Publishing and Printing
2791 Typesetting, Plate Making, and Related Services
2842 Specialty Cleaning
3000-3299 Airlines
3351-3441 Car Rental
3501-3790 Hotels/Motels/Inns/Resorts
4011 Railroads
2004–31 I.R.B.
The Service may assist payment card
organizations and their members, affili-
ates, and licensees in determining whether
the MCC or equivalent Industry Code as-
signed to a merchant/payee is correct or
whether merchants within an unlisted code
are similar to merchants within a listed
code. The Service will periodically update
the table in section 5.03 and requests that
payment card organizations notify the Ser-
vice of updates to the MCCs.
02. Cardholder/payors. A card-
holder/payor may rely on the MCC or
equivalent Industry Code assigned to a
merchant/payee in determining whether a
payment card transaction with that mer-
chant/payee is subject to information
reporting under section 6041 or section
6041A. Thus, if a merchant/payee is as-
signed an MCC and the table in section
5.03 indicates that payments to merchants
in that category are not reportable under
section 6041 or section 6041A, a card-
holder/payor is not required to report
payment card transactions with the mer-
chant/payee. Similarly, an indication in
the table that payments to a category of
merchants are reportable under section
6041 or section 6041A reflects a determi-
nation by the Service that those merchants
predominantly furnish services, and card-
holder/payors may treat payment card
transactions with those merchants as pay-
ments for services. Similar procedures
apply if the merchant/payee is assigned
Merchant Category
126
an unlisted code and the payment card
organization notifies the cardholder/payor
that it may treat payments to the mer-
chant in the same manner as payments
to merchants within a listed code. If the
merchant/payee is assigned an unlisted
code and the payment card organization
notifies the cardholder/payor that the treat-
ment of payments to the merchant depends
on the facts and circumstances, the card-
holder/payor must determine based on the
actual nature of the transaction whether
information reporting is required with re-
spect to the payments.
If a cardholder/payor determines that
the MCC or equivalent Industry Code as-
signed by the payment card organization
does not reflect the actual nature of the
transaction, the cardholder/payor may de-
termine whether information reporting is
required based on the actual nature of the
transaction. For example, transactions not
qualifying for the merchandise exception
to information reporting under this rev-
enue procedure may qualify for the excep-
tion under the generally applicable rules
of sections 6041 and 6041A if, in fact,
only merchandise is provided. In addition,
other exceptions to information reporting
(such as the exception for payments to cor-
porations) may apply.
.03 Table. The following table is used in
applying the optional procedure permitted
under this revenue procedure.
Reportable under
6041/6041A and
Authority for Exception
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
1.6041-3(c)
August 2, 2004
 MCC Merchant Category Reportable under
6041/6041A and
Authority for Exception
4111 Commuter Transport, Ferries Yes
4112 Passenger Railways Yes
4119 Ambulance Services Yes
4121 Taxicabs/Limousines Yes
4131 Bus Lines Yes
4214 Motor Freight Carriers and Trucking - Local and Long Distance, No
Moving and Storage Companies, and Local Delivery Services 1.6041-3(c)
4215 Courier Services Yes
4225 Public Warehousing and Storage - Farm Products, Refrigerated No
Goods, Household Goods, and Storage 1.6041-3(c)
4411 Cruise Lines Yes
4457 Boat Rentals and Leases Yes
4468 Marinas, Service and Supplies Yes
4511 Airlines, Air Carriers Yes
4582 Airports, Flying Fields Yes
4722 Travel Agencies, Tour Operators Yes
4723 TUI Travel – Germany Yes
4784 Tolls/Bridge Fees No
1.6041-3(c)
4789 Transportation Services (Not Elsewhere Classified) Yes
4812 Telecommunication Equipment and Telephone Sales No
1.6041-3(c)
4814 Telecommunication Services No
1.6041-3(c)
4816 Computer Network Services No
1.6041-3(c)
4821 Telegraph Services No
1.6041-3(c)
4829 Wires, Money Orders No
1.6041-3(c)
4899 Cable, Satellite, and Other Pay Television and Radio No
1.6041-3(c)
4900 Utilities No
1.6041-3(c)
5013 Motor Vehicle Supplies and New Parts No
1.6041-3(c)
5021 Office and Commercial Furniture No
1.6041-3(c)
5039 Construction Materials (Not Elsewhere Classified) No
1.6041-3(c)
5044 Photographic, Photocopy, Microfilm Equipment, and Supplies No
1.6041-3(c)
5045 Computers, Peripherals, and Software No
1.6041-3(c)
5046 Commercial Equipment (Not Elsewhere Classified) No
1.6041-3(c)
5047 Medical, Dental, Ophthalmic, and Hospital Equipment and Supplies No
1.6041-3(c)
5051 Metal Service Centers No
1.6041-3(c)
5065 Electrical Parts and Equipment No
1.6041-3(c)
5072 Hardware, Equipment, and Supplies No
1.6041-3(c)
5074 Plumbing, Heating Equipment, and Supplies No
1.6041-3(c)
5085 Industrial Supplies (Not Elsewhere Classified) No
1.6041-3(c)

August 2, 2004 127 2004–31 I.R.B.

 MCC Merchant Category Reportable under
6041/6041A and
Authority for Exception
5094 Precious Stones and Metals, Watches and Jewelry No
1.6041-3(c)
5099 Durable Goods (Not Elsewhere Classified) No
1.6041-3(c)
5111 Stationary, Office Supplies, Printing and Writing Paper No
1.6041-3(c)
5122 Drugs, Drug Proprietaries, and Druggist Sundries No
1.6041-3(c)
5131 Piece Goods, Notions, and Other Dry Goods No
1.6041-3(c)
5137 Uniforms, Commercial Clothing No
1.6041-3(c)
5139 Commercial Footwear No
1.6041-3(c)
5169 Chemicals and Allied Products (Not Elsewhere Classified) No
1.6041-3(c)
5172 Petroleum and Petroleum Products No
1.6041-3(c)
5192 Books, Periodicals, and Newspapers No
1.6041-3(c)
5193 Florists Supplies, Nursery Stock, and Flowers No
1.6041-3(c)
5198 Paints, Varnishes, and Supplies No
1.6041-3(c)
5199 Nondurable Goods (Not Elsewhere Classified) No
1.6041-3(c)
5200 Home Supply Warehouse Stores No
1.6041-3(c)
5211 Lumber, Building Materials Stores No
1.6041-3(c)
5231 Glass, Paint, and Wallpaper Stores No
1.6041-3(c)
5251 Hardware Stores No
1.6041-3(c)
5261 Nurseries, Lawn and Garden Supply Stores No
1.6041-3(c)
5271 Mobile Home Dealers No
1.6041-3(c)
5300 Wholesale Clubs No
1.6041-3(c)
5309 Duty Free Stores No
1.6041-3(c)
5310 Discount Stores No
1.6041-3(c)
5311 Department Stores No
1.6041-3(c)
5331 Variety Stores No
1.6041-3(c)
5399 Miscellaneous General Merchandise No
1.6041-3(c)
5411 Grocery Stores, Supermarkets No
1.6041-3(c)
5422 Freezer and Locker Meat Provisioners No
1.6041-3(c)
5441 Candy, Nut, and Confectionery Stores No
1.6041-3(c)
5451 Dairy Products Stores No
1.6041-3(c)

2004–31 I.R.B. 128 August 2, 2004

 MCC Merchant Category Reportable under
6041/6041A and
Authority for Exception
5462 Bakeries No
1.6041-3(c)
5499 Miscellaneous Food Stores - Convenience Stores and Specialty No
Markets 1.6041-3(c)
5511 Car and Truck Dealers (New & Used) Sales, Service, Repairs Parts No
and Leasing 1.6041-3(c)
5521 Car and Truck Dealers (Used Only) Sales, Service, Repairs Parts No
and Leasing 1.6041-3(c)
5531 Auto and Home Supply Stores No
1.6041-3(c)
5532 Automotive Tire Stores No
1.6041-3(c)
5533 Automotive Parts and Accessories Stores No
1.6041-3(c)
5541 Service Stations No
1.6041-3(c)
5542 Automated Fuel Dispensers No
1.6041-3(c)
5551 Boat Dealers No
1.6041-3(c)
5561 Motorcycle Shops, Dealers No
1.6041-3(c)
5571 Motorcycle Shops and Dealers No
1.6041-3(c)
5592 Motor Homes Dealers No
1.6041-3(c)
5598 Snowmobile Dealers No
1.6041-3(c)
5599 Miscellaneous Auto Dealers No
1.6041-3(c)
5611 Men’s and Boy’s Clothing and Accessories Stores No
1.6041-3(c)
5621 Women’s Ready-To-Wear Stores No
1.6041-3(c)
5631 Women’s Accessory and Specialty Shops No
1.6041-3(c)
5641 Children’s and Infant’s Wear Stores No
1.6041-3(c)
5651 Family Clothing Stores No
1.6041-3(c)
5655 Sports and Riding Apparel Stores No
1.6041-3(c)
5661 Shoe Stores No
1.6041-3(c)
5681 Furriers and Fur Shops No
1.6041-3(c)
5691 Men’s, Women’s Clothing Stores No
1.6041-3(c)
5697 Tailors, Alterations Yes
5698 Wig and Toupee Stores No
1.6041-3(c)
5699 Miscellaneous Apparel and Accessory Shops No
1.6041-3(c)
5712 Furniture, Home Furnishings, and Equipment Stores, Except No
Appliances 1.6041-3(c)
5713 Floor Covering Stores No
1.6041-3(c)

August 2, 2004 129 2004–31 I.R.B.

 MCC Merchant Category Reportable under
6041/6041A and
Authority for Exception
5714 Drapery, Window Covering, and Upholstery Stores No
1.6041-3(c)
5718 Fireplace, Fireplace Screens, and Accessories Stores No
1.6041-3(c)
5719 Miscellaneous Home Furnishing Specialty Stores No
1.6041-3(c)
5722 Household Appliance Stores No
1.6041-3(c)
5732 Electronics Stores No
1.6041-3(c)
5733 Music Stores-Musical Instruments, Pianos, and Sheet Music No
1.6041-3(c)
5734 Computer Software Stores No
1.6041-3(c)
5735 Record Stores No
1.6041-3(c)
5811 Caterers Yes
5812 Eating Places, Restaurants No
1.6041-3(c)
5813 Drinking Places No
1.6041-3(c)
5814 Fast Food Restaurants No
1.6041-3(c)
5912 Drug Stores and Pharmacies No
1.6041-3(c)
5921 Package Stores-Beer, Wine, and Liquor No
1.6041-3(c)
5931 Used Merchandise and Secondhand Stores No
1.6041-3(c)
5932 Antique Shops No
1.6041-3(c)
5933 Pawn Shops No
1.6041-3(c)
5935 Wrecking and Salvage Yards Yes
5937 Antique Reproductions No
1.6041-3(c)
5940 Bicycle Shops No
1.6041-3(c)
5941 Sporting Goods Stores No
1.6041-3(c)
5942 Book Stores No
1.6041-3(c)
5943 Stationery Stores, Office, and School Supply Stores No
1.6041-3(c)
5944 Jewelry Stores, Watches, Clocks, and Silverware Stores No
1.6041-3(c)
5945 Hobby, Toy, and Game Shops No
1.6041-3(c)
5946 Camera and Photographic Supply Stores No
1.6041-3(c)
5947 Gift, Card, Novelty, and Souvenir Shops No
1.6041-3(c)
5948 Luggage and Leather Goods Stores No
1.6041-3(c)
5949 Sewing, Needlework, Fabric, and Piece Goods Stores No
1.6041-3(c)
5950 Glassware, Crystal Stores No
1.6041-3(c)

2004–31 I.R.B. 130 August 2, 2004

 MCC Merchant Category Reportable under
6041/6041A and
Authority for Exception
5960 Direct Marketing - Insurance Services Yes
5962 Direct Marketing – Travel Yes
5963 Door-To-Door Sales No
1.6041-3(c)
5964 Direct Marketing - Catalog Merchant No
1.6041-3(c)
5965 Direct Marketing - Combination Catalog and Retail Merchant No
1.6041-3(c)
5966 Direct Marketing - Outbound Tele No
1.6041-3(c)
5967 Direct Marketing - Inbound Tele No
1.6041-3(c)
5968 Direct Marketing – Subscription No
1.6041-3(c)
5969 Direct Marketing - Other No
1.6041-3(c)
5970 Artist’s Supply and Craft Shops No
1.6041-3(c)
5971 Art Dealers and Galleries No
1.6041-3(c)
5972 Stamp and Coin Stores No
1.6041-3(c)
5973 Religious Goods Stores No
1.6041-3(c)
5975 Hearing Aids Sales and Supplies No
1.6041-3(c)
5976 Orthopedic Goods - Prosthetic Devices No
1.6041-3(c)
5977 Cosmetic Stores No
1.6041-3(c)
5978 Typewriter Stores No
1.6041-3(c)
5983 Fuel Dealers (Non Automotive) No
1.6041-3(c)
5992 Florists No
1.6041-3(c)
5993 Cigar Stores and Stands No
1.6041-3(c)
5994 News Dealers and Newsstands No
1.6041-3(c)
5995 Pet Shops, Pet Food, and Supplies No
1.6041-3(c)
5996 Swimming Pools Sales No
1.6041-3(c)
5997 Electric Razor Stores No
1.6041-3(c)
5998 Tent and Awning Shops No
1.6041-3(c)
5999 Miscellaneous Specialty Retail No
1.6041-3(c)
6010 Manual Cash Disburse No
1.6041-3(c)
6011 Automated Cash Disburse No
1.6041-3(c)
6012 Financial Institutions Yes
6051 Non-FI, Money Orders No
1.6041-3(c)
6211 Security Brokers/Dealers Yes

August 2, 2004 131 2004–31 I.R.B.

 MCC Merchant Category Reportable under
6041/6041A and
Authority for Exception
6300 Insurance Underwriting, Premiums No
1.6041-3(c)
6399 Insurance - Default No
1.6041-3(c)
6513 Real Estate Agents and Managers – Rentals Yes
7011 Hotels, Motels, and Resorts Yes
7012 Timeshares Yes
7032 Sporting/Recreation Camps Yes
7033 Trailer Parks, Campgrounds Yes
7210 Laundry, Cleaning Services Yes
7211 Laundries Yes
7216 Dry Cleaners Yes
7217 Carpet/Upholstery Cleaning Yes
7221 Photographic Studios Yes
7230 Barber and Beauty Shops Yes
7251 Shoe Repair/Hat Cleaning Yes
7261 Funeral Services, Crematories Yes
7273 Dating/Escort Services Yes
7276 Tax Preparation Services Yes
7277 Counseling Services Yes
7278 Buying/Shopping Services Yes
7296 Clothing Rental Yes
7297 Massage Parlors Yes
7298 Health and Beauty Spas Yes
7299 Miscellaneous General Services Yes
7311 Advertising Services Yes
7321 Credit Reporting Agencies Yes
7333 Commercial Photography, Art and Graphics Yes
7338 Quick Copy, Repro, and Blueprint Yes
7339 Secretarial Support Services Yes
7342 Exterminating Services Yes
7349 Cleaning and Maintenance Yes
7361 Employment/Temp Agencies Yes
7372 Computer Programming Yes
7375 Information Retrieval Services Yes
7379 Computer Repair Yes
7392 Consulting, Public Relations Yes
7393 Detective Agencies Yes
7394 Equipment Rental Yes
7395 Photo Developing Yes
7399 Miscellaneous Business Services Yes
7511 Truck Stop Yes
7512 Car Rental Agencies Yes
7513 Truck/Utility Trailer Rentals Yes
7519 Recreational Vehicle Rentals Yes
7523 Parking Lots, Garages Yes
7531 Auto Body Repair Shops Yes
7534 Tire Retreading and Repair Yes
7535 Auto Paint Shops Yes
7538 Auto Service Shops Yes
7542 Car Washes Yes
7549 Towing Services Yes
7622 Electronics Repair Shops Yes
7623 A/C, Refrigeration Repair Yes
7629 Small Appliance Repair Yes
7631 Watch/Jewelry Repair Yes
7641 Furniture Repair, Refinishing Yes
7692 Welding Repair Yes
7699 Miscellaneous Repair Shops Yes
7829 Picture/Video Production Yes

2004–31 I.R.B. 132 August 2, 2004

 MCC Merchant Category Reportable under
6041/6041A and
Authority for Exception
7832 Motion Picture Theaters Yes
7841 Video Tape Rental Stores Yes
7911 Dance Hall, Studios, Schools Yes
7922 Theatrical Ticket Agencies Yes
7929 Bands, Orchestras Yes
7932 Billiard/Pool Establishments Yes
7933 Bowling Alleys Yes
7941 Sports Clubs/Fields Yes
7991 Tourist Attractions and Exhibits Yes
7992 Golf Courses – Public Yes
7993 Video Amusement Game Supplies No
1.6041-3(c)
7994 Video Game Arcades Yes
7995 Betting/Casino Gambling Yes
7996 Amusement Parks/Carnivals Yes
7997 Country Clubs Yes
7998 Aquariums Yes
7999 Miscellaneous Recreation Services Yes
8011 Doctors Yes
8021 Dentists, Orthodontists Yes
8031 Osteopaths Yes
8041 Chiropractors Yes
8042 Optometrists, Ophthalmologist Yes
8043 Opticians, Eyeglasses Yes
8049 Chiropodists, Podiatrists Yes
8050 Nursing/Personal Care Yes
8062 Hospitals Yes
8071 Medical and Dental Labs Yes
8099 Medical Services Yes
8111 Legal Services, Attorneys Yes
8211 Elementary, Secondary Schools No
1.6041-3(p)(2)
8220 Colleges, Universities No
1.6041-3(p)(2)
8241 Correspondence Schools No
1.6041-3(p)(2)
8244 Business/Secretarial Schools No
1.6041-3(p)(2)
8249 Vocational/Trade Schools No
1.6041-3(p)(2)
8299 Educational Services Yes
8351 Child Care Services Yes
8398 Charitable and Social Service Organizations - Fundraising No
1.6041-3(p)(2)
8641 Civic, Social, Fraternal Associations No
1.6041-3(p)(2)
8651 Political Organizations Yes
8661 Religious Organizations No
1.6041-3(p)(2)
8675 Automobile Associations Yes
8699 Membership Organizations Yes
8734 Testing Laboratories Yes
8911 Architectural/Surveying Services Yes
8931 Accounting/Bookkeeping Services Yes
8999 Professional Services Yes
9211 Court Costs, Including Alimony and Child Support - Courts of Law No
1.6041-3(p)(4)
9222 Fines - Government Administrative Entities No
1.6041-3(p)(4)

August 2, 2004 133 2004–31 I.R.B.

 MCC Merchant Category Reportable under
6041/6041A and
Authority for Exception
9223 Bail and Bond Payments (payment to the surety for the bond, not the Yes
actual bond paid to the government agency)
9311 Tax Payments - Government Agencies No
1.6041-3(p)(4)
9399 Government Services (Not Elsewhere Classified) No
1.6041-3(p)(4)
9402 Postal Services - Government Only No
1.6041-3(p)(3)
9405 U.S. Federal Government Agencies or Departments No
1.6041-3(p)(3)
9950 Intra-Company Purchases No
1.6041-3(c)

SECTION 6. EFFECTIVE DATE
This revenue procedure is effective July
14, 2004.
SECTION 7. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Joseph P. Dewald of the
Office of Associate Chief Counsel (Pro-
cedure and Administration). For further
information regarding this revenue pro-
cedure, contact Mr. Dewald at (202)
622–4910 (not a toll-free call).
26 CFR 601.201: Rulings and determination letters.
(Also: Part I, § 412.)
Rev. Proc. 2004–44
SECTION 1. PURPOSE
The purpose of this revenue procedure
is to outline the procedure by which a plan
administrator or a plan sponsor may re-
quest and obtain approval for an exten-
sion of an amortization period in accor-
dance with § 412(e) of the Internal Rev-
enue Code and section 304(a) of the Em-
ployee Retirement Income Security Act of
1974 (ERISA), Pub. L. 93–406, 1974–3
C.B. 1, 42.
SECTION 2. BACKGROUND
INFORMATION
.01 Statute—Section 412(e) of the Code
and section 304(a) of ERISA provide that
the period of years required to amortize
any unfunded liability of any plan may be
extended by the Secretary of Labor for a
period of time (not in excess of 10 years).
.02 Reorganization Plan—Reorganiza-
tion Plan No. 4 of 1978, 1979–1 C.B. 480,
which became effective December 31,
1978, transferred the function described
in subsection .01 to the Secretary of the
Treasury.
SECTION 3. REQUESTS FOR
APPROVAL TO EXTEND AN
AMORTIZATION PERIOD
.01 Who may submit—Only a plan
administrator, plan sponsor, or an autho-
rized representative of either may submit
a request for approval to extend the pe-
riod of years required to amortize any
unfunded liability. The request must be
signed by the taxpayer maintaining the
plan (hereinafter referred to as “appli-
cant”) or an authorized representative of
the applicant who either must be identified
in (a), (b), or (c) of subsection 9.02(11)
of Rev. Proc. 2004–4, 2004–1 I.R.B. 125,
or must be an enrolled actuary within the
meaning of § 7701(a)(35) of the Code.
Where an authorized representative signs
the request or will appear before the Ser-
vice in connection with the request, a Form
2848, Power of Attorney and Declaration
of Representative, must be submitted with
the request. For multiemployer plans, the
request must be made by the Board of
Trustees (which shall be deemed to be
the applicant) or by an authorized repre-
sentative of the Board of Trustees. An
individual is not an authorized represen-
tative of the applicant merely on account
of being an administrator or trustee of the
plan.
.02 Submission.––Requests for ap-
proval to extend an amortization period
must be submitted to:
Employee Plans
Internal Revenue Service
Commissioner, TE/GE
Attention: SE:T:EP:RA
P.O. Box 27063
McPherson Station
Washington, D.C. 20038
The user fee required by Rev. Proc.
2004–8, 2004–1 I.R.B. 240, or its succes-
sors, must be sent with such requests.
.03 Necessary Procedural Docu-
ments.—A request will not be considered
unless it complies with (1) through (3)
below.
(1) The request also must contain a
declaration in the following form: “Un-
der the penalties of perjury, I declare that I
have examined this request, including ac-
companying documents, and to the best of
my knowledge and belief, the facts pre-
sented in support of the request are true,
correct, and complete.” This declaration
must be signed by the applicant (e.g., an
authorized officer of a corporation). The
signature of an individual with a power of
attorney will not suffice for the declara-
tion. See section 9.02(13) of Rev. Proc.
2004–4, supra, at 142.
(2) Because a request for an extension
constitutes a request for a ruling, compli-
ance with section 6110 of the Code is also
required. Section 601.201 of the Statement
of Procedural Rules sets forth the require-
ments applicable to requests for rulings
and determination letters which are subject
to section 6110. Section 601.201(e) fur-
nishes specific instructions to applicants.

2004–31 I.R.B. 134 August 2, 2004

 The applicant must provide with the
request either a statement of proposed
deletions and the statutory basis for each
proposed deletion, or a statement that no
information other than names, addresses,
and taxpayer identifying numbers need be
deleted.
(3) The applicant must provide a copy
of a written notification to each employee
organization representing employees cov-
ered by the plan, and each participant, ben-
eficiary, and alternate payee of the plan,
that an application for an extension of the
amortization period under § 412(e) has
been submitted to the Service. The orig-
inal of the written notification must bear a
signature by an appropriate officer of the
applicant and must be in substantially the
form set forth in the Model Notice found
in the Appendix A to this revenue proce-
dure. The Service does not require the ap-
plicant to furnish any information in addi-
tion to that required by the Model Notice in
the Appendix A to plan participants, bene-
ficiaries, alternate payees, or employee or-
ganizations as part of the extension appli-
cation process, but additional information
may, of course, be provided by the appli-
cant pursuant to the collective bargaining
process or otherwise.
The application must state that such
notice was hand delivered or mailed to
the last known address of each employee
organization, participant, beneficiary, and
alternate payee (within the meaning of
§ 414(p)(8)) within 14 days prior to the
date of the application. If the applicant
makes a reasonable effort to carry out the
provisions of this paragraph, failure of an
employee organization, participant, ben-
eficiary, or alternate payee to receive the
notice will not cause the applicant to fail
the notice requirement. However, merely
posting the notice on a bulletin board is
not sufficient to satisfy this requirement.
.04 Necessary Information.––The ap-
plicant must furnish appropriate evidence
that the extension of the amortization pe-
riod is needed to continue the plan or to
prevent a substantial curtailment of pen-
sion benefit levels or employee compen-
sation, and that a denial of the extension
would be adverse to the interests of the
plan participants in the aggregate. What
constitutes appropriate evidence will de-
pend on the facts and circumstances of
each case. A response must be furnished
for each of the paragraphs (1) through (6)
August 2, 2004
below. In certain cases, some of the ma-
terial described in paragraphs (1) through
(6) may be inapplicable, unavailable, in-
appropriate or burdensome to furnish. In
such cases, the applicant should furnish a
statement indicating why the material for
a particular paragraph is inapplicable, un-
available, inappropriate or burdensome.
(1) General facts concerning the em-
ployer.
A brief statement should be submitted
concerning: (a) the history of the em-
ployer and its primary business; (b) the
ownership of the employer and any re-
cent or contemplated changes (such as
acquisitions, mergers, discontinuances of
operations) which might have a bearing
on the employer’s organization or finan-
cial condition; (c) whether the employer
is aggregated with any other entity for
purposes of § 414(b), (c), (m) or (o); and
(d) whether the plan is also maintained by
employers described in (c) above or any
other employers.
(2) The financial condition of the em-
ployer.
For plans other than multiemployer
plans, the latest available annual finan-
cial report of the employer and each of
the other entities included within the con-
trolled group of which the employer is a
member. This submission must include
at least the balance sheet, profit and loss
statement, cash flow statement, and notes
to the financial statement. Recent interim
financial reports for each of the controlled
group members, if available, should also
be submitted along with an interim finan-
cial report covering the corresponding pe-
riod for the previous year. If the employer
submits financial reports to the Securities
and Exchange Commission, these reports
should be submitted for the same period
as the annual financial report. Preferably,
the financial report should include cer-
tified financial statements. If certified
financial statements have not been pre-
pared, an uncertified report is acceptable.
If neither certified nor uncertified reports
are available, a copy of the company’s
latest available federal income tax return,
including all of the supporting schedules,
must be submitted.
For multiemployer plans, the financial
information described in the above para-
graph must only be submitted for employ-
ers who either (1) are represented on the
Board of Trustees or (2) made or were re-
135
quired to make five percent or more of
the total required contributions under the
collective bargaining agreements relating
to the plan for which the extension is re-
quested. In addition, the applicant must
submit a general description of the finan-
cial state of the industry in which employ-
ees covered by the plan are employed. Re-
gardless of whether any employer makes
more than five percent of the total contri-
butions, a general description of the finan-
cial state of the industry in which employ-
ees covered by the plan are employed is re-
quired. For purposes of this paragraph, a
multiple employer plan for which the plan
administrator did not make an election un-
der § 413(c)(4)(B) of the Code is required
to submit the same information as a mul-
tiemployer plan. Financial information of
employers contributing to a multiemployer
plan (identified by name of plan and plan
number) must be submitted directly from
the contributing employers to the Service
at the same time that the submission is
made to the following address:
Employee Plans
Internal Revenue Service
Commissioner, TE/GE
Attention: SE:T:EP:RA
P.O. Box 27063
McPherson Station
Washington, D.C. 20038
(3) Information concerning the exten-
sion of the amortization period. Informa-
tion concerning the extension of the amor-
tization period should include the follow-
ing.
(a) The unfunded liability for
which an extension of the amortization
period is requested.
(b) The reasons why an extension
of the amortization period is needed.
(c) The length of the extension of
the amortization period desired (up to a
maximum of 10 years).
(d) Information concerning the
actions taken by the applicant to reduce
the plan’s unfunded liability before the
request for an extension has been made.
Such actions would include the reduc-
tion of future plan benefit accruals and
increases in employer contribution rates.
Also describe any benefit reductions, con-
tribution rate increases, or other actions
that are intended to be taken in the future.
2004–31 I.R.B.
 (e) Projections of (i) funding stan-
dard account credit balance/accumulated
funding deficiencies, (ii) actuarial value of
assets and market value of assets, (iii) cur-
rent liabilities, and (iv) funding ratios, for
the length of the extension of the amorti-
zation period requested and for the period
ten (10) years afterwards. For example, if
the applicant requests an extension of ten
(10) years, the projections should be for a
20-year period. These projections must be
prepared by an enrolled actuary.
(f) The plan year for which the
extension is requested, i.e., the first plan
year for which the extension of the amorti-
zation period will be reflected in the deter-
mination of the minimum funding standard
for the plan (e.g., 1/1/2004—12/31/2004).
The Service may request additional in-
formation as needed.
(4) Facts concerning the pension plan.
For each pension plan for which an exten-
sion is requested, the following informa-
tion should be supplied.
(a) The name of the plan, the
plan’s identification number, and file
folder number (if any).
(b) The date the plan was adopted.
(c) The effective date of the plan.
(d) The classes of employees cov-
ered.
(e) The number of employees
covered.
(f) A copy of the current plan doc-
ument and the most recent summary plan
description.
(g) A copy of the most recent de-
termination letter issued to the plan.
(h) A brief description of all plan
amendments adopted during the year for
which the extension is requested and the
previous four years which affect plan
costs, including the approximate effect of
each amendment on such costs.
(i) The most recent actuarial re-
port plus any available actuarial reports for
the preceding two plan years. Also, if not
shown in that report, the present value of
accrued benefits, present value of vested
benefits, and fair market value of assets
(excluding contributions not yet paid).
(j) A description of how the plan
is funded (i.e., trust fund, individual insur-
ance policies, etc.).
(k) A list of the contributions ac-
tually paid in each month, from the twenty-
fourth month prior to the beginning of the
2004–31 I.R.B.
plan year for which the extension is re-
quested through the date of the request and
the plan year to which the contributions
were applied, with the employee contribu-
tions and the employer contributions listed
separately.
(l) The approximate contribution
required to meet the minimum funding
standard. For defined benefit plans, this
amount should be determined by the plan’s
enrolled actuary.
(m) A copy of the most recently
completed Annual Return/Report of Em-
ployee Benefit Plan (Form 5500 series, as
applicable) and in the case of a defined
benefit plan, a copy of the corresponding
Actuarial Information schedule (Schedule
B of Form 5500).
(n) A copy of each ruling letter
that waived the minimum funding stan-
dard during the last 15 plan years, a state-
ment of the amount waived for each plan
year, and a statement of the outstanding
balance of the amortization base for each
waived funding deficiency. The outstand-
ing balance of the amortization base for
each waiver is to be calculated as of the
first day of the plan year for which an ex-
tension is being requested.
(o) A copy of each ruling letter
that granted, under § 412(e) of the Code
and section 304(a) of ERISA, an extension
of time to amortize any unfunded liability
which became applicable at any time dur-
ing the last 15 plan years.
(5) Other pension, profit-sharing, or
stock bonus plans. If the employer main-
tains more than one plan, an outline of the
essential facts for each such plan should be
submitted. This should include:
(a) A brief description of the plan,
including the name of the plan and its plan
year.
(b) The number of employees
covered.
(c) The classes of employees cov-
ered.
(d) The approximate annual con-
tribution required.
(e) The amount of contributions
that have been made, or are intended to be
made, for any plan year of such other plan
commencing in, or ending in, the plan year
for which the extension is requested.
(f) A statement as to whether a re-
quest for a waiver of the minimum funding
136
standard or an extension of an amortization
period is contemplated for the plan.
(6) Other information.
(a) Describe the nature of any
matters pertaining to the plan which are
currently pending or are intended to be
submitted to the Service, the Department
of Labor or the Pension Benefit Guaranty
Corporation.
(b) Furnish details of any existing
arbitration, litigation, or court procedure
which involves the plan.
.05 Checklist.––A checklist has been
provided in Appendix B for the conve-
nience of the taxpayer submitting the re-
quest. This checklist should be signed, by
the taxpayer or authorized representative,
and dated and placed on top of the request.
SECTION 4. DEADLINE FOR
REQUESTING AN EXTENSION OF
THE AMORTIZATION PERIOD
All extension requests should be sub-
mitted by the last day of the plan year for
which the extension is intended to take ef-
fect. The Service will consider applica-
tions for extensions submitted after this
date only upon a showing of good cause.
In seeking an extension of an amortization
period with respect to a plan year which
has not yet ended, the applicant may have
difficulty in furnishing sufficient current
evidence in support of the request. For
this reason, it is generally advised that a
request not be submitted earlier than 180
days prior to the end of the plan year for
which the extension is requested.
SECTION 5. GENERAL
Employers who have difficulty in fur-
nishing the information specified in this
revenue procedure may call the Employee
Plans Customer Assistance Service at
1–877–829–5500 (a toll–free number), or
write for guidance to the following ad-
dress:
Internal Revenue Service
Commissioner, TE/GE
Attention: SE:T:EP:RA:T:A
1111 Constitution Avenue, N.W.
Washington, D.C. 20224
In appropriate instances, pre-submission
conferences may be afforded in addition
to conferences available under Rev. Proc.
2004–4.
August 2, 2004
SECTION 6. BANKRUPTCY
PETITIONS
If the applicant or a significant number
of controlled group members file a bank-
ruptcy petition after the request for an ex-
tension of an amortization period is sub-
mitted to the Service, the applicant must
provide to the Service an update to the in-
formation required to be submitted in sec-
tion 3 of this revenue procedure, espe-
cially the financial information in section
3.04(2).
SECTION 7. EFFECTIVE DATE
This revenue procedure is effective for
all ruling requests received after August
2, 2004, the date of its publication in the
Internal Revenue Bulletin.
SECTION 8. EFFECT ON OTHER
REVENUE PROCEDURES
Rev. Proc. 2004–4 is modified to the
extent that this revenue procedure provides
special procedures for issuing rulings with
respect to requests for an extension of an
amortization period.
Rev. Proc. 79–61, 1979–2 C.B. 575, is
superseded
August 2, 2004
SECTION 9. PAPERWORK
REDUCTION ACT
The collection of information con-
tained in this revenue procedure has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act (44
U.S.C. section 3507) under control num-
ber 1545–1890.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
OMB control number.
The collection of information in this
revenue procedure is in section 3 and Ap-
pendix B. This collection of information
is required to evaluate, process and obtain
approval of the request for an extension of
an amortization period. This information
will be used to make determinations on ex-
tensions of the amortization period under
§ 412(e) of the Code. The likely respon-
dents are businesses or other for-profit in-
stitutions and nonprofit institutions.
The estimated total annual report-
ing/recordkeeping burden is 2500 hours.
The estimated annual burden per re-
spondent/recordkeeper varies from 71 to
129 hours, depending on individual cir-
137
cumstances, with an estimated average
burden of 100 hours. The estimated num-
ber of respondents/recordkeepers is 25.
The estimated annual frequency of re-
sponses is one.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required
by 26 U.S.C. section 6103.
DRAFTING INFORMATION
The principal author of this revenue
procedure is John C. Heil of the Employee
Plans, Tax Exempt and Government En-
tities Division. For further information
regarding how this revenue procedure ap-
plies to employee plans matters, contact
the Employee Plans Customer Assistance
Service at 1–877–829–5500 (a toll-free
call). Mr. Heil’s telephone number is
(202) 283–9694 (not a toll-free call).
2004–31 I.R.B.
 APPENDIX A

MODEL NOTICE OF APPLICATION FOR AN

EXTENSION OF AN AMORTIZATION PERIOD
TO EMPLOYEE ORGANIZATIONS (UNIONS),
PARTICIPANTS, BENEFICIARIES, AND ALTERNATE PAYEES
This notice is to inform you that an application for an extension of an amortization period for unfunded liability under § 412(e)
of the Internal Revenue Code (Code) and section 304 of the Employee Retirement Income Security Act of 1974 (ERISA) has been
submitted by [INSERT APPLICANT’S NAME] to the Internal Revenue Service (Service) for the [INSERT PLAN NAME] for
the plan year beginning [INSERT DATE].
Under § 412(f)(4)(B) of the Code and section 304(a) of ERISA, the Service will consider any relevant information submitted
concerning this application for an extension of the amortization period for unfunded liability. You may send this information to the
following address:
Director, Employee Plans
Internal Revenue Service
Attn: SE:T:EP:RA:T:A
1111 Constitution Avenue, N.W.
Washington, D.C. 20224
Any such information should be submitted as soon as possible after you have received this notice. Due to the disclosure restric-
tions of § 6103 of the Code, the Service can not provide any information with respect to the extension request itself.
In accordance with section 104 of ERISA and section 2520.104b–10 of the Department of Labor Regulations (29 C.F.R. Part
2520), annual financial reports for this plan, which include employer contributions made to the plan for any plan year, are available
for inspection at the Department of Labor in Washington, D.C. Copies of such reports may be obtained upon request and upon
payment of copying costs from the following address:
Public Disclosure Room
Room N–5507
Employee Benefits Security Administration
U.S. Department of Labor
200 Constitution Avenue, N.W.
Washington, D.C. 20210
As required by section 104(b)(2) of ERISA, copies of the latest annual plan report are available for inspection at the principal
office of the plan administrator, who is located at [INSERT ADDRESS]. Copies of the annual report may be obtained upon request
and upon payment of a copying charge of [INSERT CHARGE] by writing to the plan administrator at the above address.
The following information is provided pursuant to § 412(f)(4)(A) of the Code and section 303(e)(1) of ERISA:
Present Value of Vested Benefits $
Present Value of Benefits, calculated as though the plan terminated $
Fair Market Value of Plan Assets $

The above present values were calculated using an interest rate or rates of [INSERT INTEREST RATE(S)].

[SIGNATURE OF APPROPRIATE OFFICER OF THE PLAN SPONSOR]

[INSERT NAME]
[INSERT TITLE]

2004–31 I.R.B. 138 August 2, 2004

 APPENDIX B

REQUEST FOR EXTENSION OF AN AMORTIZATION PERIOD CHECKLIST

IS YOUR SUBMISSION COMPLETE?

Instructions

The Service will be able to respond more quickly to your request for an extension of an amortization period if it is carefully
prepared and complete. To ensure your request is in order, use this checklist. Answer each question in the checklist by inserting
Y for yes, N for no, or N/A for not applicable, as appropriate, in the blank next to the item. Sign and date the checklist (as
taxpayer or authorized representative) and place it on top of your request.

You must submit a completed copy of this checklist with your request. If a completed checklist is not submitted with your request,
substantive consideration of your submission will be deferred until a completed checklist is received.

__________ 1. If you want to designate an authorized representative, have you included a properly executed
Form 2848 (Power of Attorney and Declaration of Representative)?

__________ 2. Have you satisfied all the requirements of Rev. Proc. 2004–4 or its successors (especially
concerning signatures and penalties of perjury statement)? (See section 3.03(1))

__________ 3. Have you included statement of proposed deletions? (See section 3.03(2))

__________ 4. Have you included the user fee required under Rev. Proc. 2004–8 or its successors? (See section
3.02)

__________ 5. Have you included a copy of the written notification that an application for an extension of an
amortization period has been submitted and a statement that such notice was hand delivered or
mailed to each employee organization, participant, beneficiary and alternate payee? (See section
3.03(3) and Appendix A)

__________ 6. Have you included the general facts concerning the employer? (See section 3.04(1))

__________ 7. Have you included a description of the employer’s financial condition? (See section 3.04(2))

__________ 8. Have you included information concerning the extension of the amortization period? (See
section 3.04(3))

__________ 9. Have you included information concerning the pension plan? (See section 3.04(4))

__________ 10. Have you included information concerning other pension, profit-sharing, or stock bonus plans of
the employer? (See section 3.04(5))

__________ 11. Have you included information concerning other matters pertaining to the plan? (See section
3.04(6))

August 2, 2004 139 2004–31 I.R.B.

 Signature
Title or Authority
Typed or printed name of person signing checklist
26 CFR 601.105: Examination of returns and claims
for refund, credit, or abatement; determination of
correct tax liability.
(Also, Part I, § 6011; 1.6011–4.)
Rev. Proc. 2004–45
SECTION 1. PURPOSE
This revenue procedure provides al-
ternative disclosure procedures that are
deemed to satisfy a taxpayer’s disclo-
sure obligations under § 1.6011–4 of
the Income Tax Regulations for transac-
tions with a significant book-tax differ-
ence under § 1.6011–4(b)(6). Taxpayers
also may continue to follow the disclo-
sure procedures provided in § 1.6011–4
for disclosing transactions described in
§ 1.6011–4(b)(6).
SECTION 2. BACKGROUND
.01 Section 1.6011–4 requires a tax-
payer who participates in a reportable
transaction to disclose the transaction in
accordance with the procedures provided
in § 1.6011–4. Under § 1.6011–4(b), there
are six categories of reportable transac-
tions. One category of reportable trans-
actions is a transaction with a significant
book-tax difference. A transaction with
a significant book-tax difference is de-
fined in § 1.6011–4(b)(6) as a transaction
where the amount for tax purposes of any
item or items of income, gain, expense, or
loss from the transaction differs by more
than $10 million on a gross basis from
the amount of the item or items for book
purposes in any taxable year. For purposes
of § 1.6011–4(b)(6), the amount of an item
for book purposes is determined by ap-
plying U.S. generally accepted accounting
principles for worldwide income.
2004–31 I.R.B.
.02 Section 1.6011–4(b)(6)(ii) provides
that the following taxpayers must disclose
transactions with a significant book-tax
difference: (1) reporting companies under
the Securities Exchange Act of 1934 (15
U.S.C. 78a) and related business entities;
and (2) business entities that have $250
million or more in gross assets for book
purposes at the end of any financial ac-
counting period that ends with or within
the entity’s taxable year in which the trans-
action occurs.
.03 On July 7, 2004, the Treasury De-
partment and Internal Revenue Service re-
leased a draft of the final version of Sched-
ule M–3, Net Income (Loss) Reconcilia-
tion For Corporations With Total Assets of
$10 Million or More. In general, for tax-
able years ending on or after December
31, 2004, any corporation (or U.S. con-
solidated tax group) required to file Form
1120, U.S. Corporation Income Tax Re-
turn, that reports total assets at the end of
the corporation’s (or U.S. consolidated tax
group’s) taxable year that equal or exceed
$10 million on Schedule L of Form 1120
is required to complete and file Schedule
M–3.
SECTION 3. SCOPE
This revenue procedure applies to a
taxpayer that is required to disclose re-
portable transactions under § 1.6011–4
with respect to transactions described in
§ 1.6011–4(b)(6).
SECTION 4. APPLICATION
.01 Corporation required to complete
Schedule M–3 for a taxable year ending
on or after December 31, 2004. For a tax-
able year ending on or after December 31,
2004, a corporation required to file Sched-
ule M–3 that completes and files Schedule
M–3 (in accordance with the instructions
140
Date
to the form, including draft instructions un-
til such instructions are finalized) with the
corporation’s timely-filed original tax re-
turn (including extensions) for the taxable
year is deemed to satisfy the disclosure re-
quirements of § 1.6011–4 with respect to
transactions described in § 1.6011–4(b)(6)
for that taxable year.
.02 Taxpayer not required to complete
Schedule M–3 for a taxable year ending on
or after December 31, 2004. A taxpayer
that is required to disclose reportable trans-
actions under § 1.6011–4 with respect to
transactions described in § 1.6011–4(b)(6),
but is not required to complete Schedule
M–3, for a taxable year ending on or af-
ter December 31, 2004, will continue to
be subject to the disclosure requirements
of § 1.6011–4. However, the taxpayer is
deemed to satisfy the disclosure require-
ments of § 1.6011–4 with respect to trans-
actions described in § 1.6011–4(b)(6) for
a taxable year ending on or after Decem-
ber 31, 2004, if the taxpayer complies with
the alternative disclosure procedures de-
scribed in section 4.04 of this revenue pro-
cedure for that taxable year.
.03 Alternative disclosure procedures
for a taxable year ending before Decem-
ber 31, 2004, for transactions entered
into on or after January 1, 2003. For
a taxable year ending before December
31, 2004, a taxpayer required to disclose
reportable transactions under § 1.6011–4
with respect to transactions described in
§ 1.6011–4(b)(6) that were entered into
on or after February 28, 2003, is deemed
to satisfy the disclosure requirements of
§ 1.6011–4 with respect to those transac-
tions if the taxpayer complies with the al-
ternative disclosure procedures described
in section 4.04 of this revenue procedure.
These rules also may be relied upon for
taxable years ending before December 31,
2004, with respect to transactions entered
into on or after January 1, 2003, and before
August 2, 2004
February 28, 2003, that are subject to dis-
closure under § 1.6011–4 or § 1.6011–4T
with respect to transactions described in
§ 1.6011–4(b)(6) or § 1.6011–4T(b)(6),
respectively.
.04 Alternative disclosure procedures
for transactions with a significant book-tax
difference.
(1) In general. A taxpayer described
in section 4.02 or section 4.03 of this rev-
enue procedure is deemed to satisfy the
disclosure requirements of § 1.6011–4
with respect to transactions described
in § 1.6011–4(b)(6) if the taxpayer dis-
closes on a Schedule M–3 each item of
income, gain, loss, deduction, or credit for
which the difference between the amount
included in the taxpayer’s financial state-
ment net income (loss) for the taxable
year and the amount included in taxable
income for the taxable year (“difference”)
is greater than $10 million. The taxpayer
must separately state and adequately dis-
close, on the applicable line of Column
B and Column C of Part II and Part III
of Schedule M–3, each difference that
is greater than $10 million. The Sched-
ule M–3 must be completed (and filed in
accordance with section 4.04(2) of this
revenue procedure) as if the taxpayer
were a corporation required to complete
and file Schedule M–3 for that taxable
year. For purposes of this section 4.04(1),
the rules applicable to a corporation (or
U.S. consolidated tax group) required to
complete and file Schedule M–3 (for ex-
ample, guidance provided in the form of
instructions to Schedule M–3 (including
draft instructions until such instructions
are finalized)) will apply, including rules
for determining: (i) an item of income,
gain, loss, deduction, or credit; (ii) how
to separately state and adequately disclose
a difference; (iii) whether an item(s) can
be combined with another item(s); (iv) the
classification of a difference as temporary
or permanent; and (v) the information
required to be provided for items of part-
nerships and flow-through entities.
For purposes of this section 4.04(1), the
taxpayer’s financial statement net income
(loss) is the financial statement net income
(loss) of the taxpayer if the taxpayer were
a corporation required to complete Sched-
ule M–3 (that is, the amount that would
be reported on line 11, Part I of Schedule
M–3). In addition, in the case of a member
of a group of affiliated corporations filing
August 2, 2004
a U.S. consolidated tax return, whether an
item of difference exceeds $10 million is
based on the separate activity of that group
member, and is not based on the consoli-
dated activity of the U.S. consolidated tax
group.
(2) Time and manner for complying
with the alternative disclosure procedures
of section 4.04(1). The Schedule M–3
required under section 4.04(1) of this rev-
enue procedure, and any supporting state-
ments, must be attached to the taxpayer’s
timely filed original tax return (including
extensions). The taxpayer must include its
name and identification number on the top
of Page 1 of Schedule M–3 and also must
include the following statement on the top
of Page 1 of Schedule M–3: “Alternative
disclosure under Rev. Proc. 2004–45 for
transactions with a significant book-tax
difference under § 1.6011–4(b)(6).” In
addition, the taxpayer must send a copy of
the Schedule M–3 required under section
4.04(1) of this revenue procedure, and
any supporting statements, to the Office
of Tax Shelter Analysis, Internal Rev-
enue Service LM:PFTG:OTSA, Large &
Mid-Size Business Division, 1111 Consti-
tution Ave., NW, Washington, DC 20224,
on or before the due date for the taxpayer’s
timely filed original tax return (including
extensions). If a taxpayer does not have
a difference in excess of $10 million as
determined under section 4.04(1) of this
revenue procedure, the taxpayer is not
required to file a Schedule M–3 otherwise
required by this revenue procedure and
the taxpayer also is not required to file
Form 8886, Reportable Transaction Dis-
closure Statement, otherwise required by
§ 1.6011–4, with respect to transactions
described in § 1.6011–4(b)(6).
(3) Use of draft final version of Sched-
ule M–3. For purposes of complying with
the alternative disclosure procedures de-
scribed in section 4.04(1) and (2) of this
revenue procedure, a taxpayer must use the
most recent draft version of Schedule M–3
(and any guidance provided in the form
of instructions to Schedule M–3, includ-
ing draft instructions) referred to in section
2.03 of this revenue procedure until Sched-
ule M–3 is released in final form.
.05 Effect on other disclosure obliga-
tions. This revenue procedure does not
affect any of a taxpayer’s disclosure obli-
gations under §§ 1.6011–4, 20.6011–4,
25.6011–4, 31.6011–4, 53.6011–4,
141
54.6011–4, or 56.6011–4 with respect
to a transaction described in one or more
of §§ 1.6011–4(b)(2), (b)(3), (b)(4), (b)(5),
or (b)(7), even if the transaction also is de-
scribed under § 1.6011–4(b)(6).
.06 The Service and the Treasury will
continue to evaluate whether the disclo-
sure requirements described in this rev-
enue procedure and Schedule M–3 provide
the Service and Treasury adequate infor-
mation regarding significant book-tax dif-
ferences.
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective July
7, 2004.
SECTION 6. PAPERWORK
REDUCTION ACT
The collection of information con-
tained in this revenue procedure has been
reviewed and approved by the Office
of Management and Budget in accor-
dance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number
1545–1894.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
OMB control number.
The collection of information in this
revenue procedure is in section 4. The in-
formation will be used to determine if tax-
payers have complied with the disclosure
requirements in § 1.6011–4. This infor-
mation collection is voluntary. Taxpayers
may choose this alternate procedure of dis-
closing instead of disclosing the informa-
tion on Form 8886.
The likely respondents are business or
other for-profit institutions. The estimated
total annual reporting burden associated
with this alternative method of compliance
is zero. This is because the burden is al-
ready accounted for under control num-
ber 1545–1685 which applies to the regu-
lations under § 1.6011–4.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.
2004–31 I.R.B.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Tara P. Volungis of the
Office of the Associate Chief Counsel
(Passthroughs and Special Industries). For
further information regarding this rev-
enue procedure, contact Ms. Volungis at
(202) 622–3070 (not a toll-free number).
For information regarding Schedule M–3,
contact Diane Litecky at (732) 452–8134
(not a toll-free number).
26 CFR 601.201: Rulings and determination letters.
(Also: Part I, §§ 2631; 2642; 301.9100–3.)
Rev. Proc. 2004–46
SECTION 1. PURPOSE
This revenue procedure provides a sim-
plified alternate method for certain taxpay-
ers to obtain an extension of time under
§ 301.9100–3 of the Procedure and Ad-
ministration Regulations to make an al-
location of the generation-skipping trans-
fer (GST) exemption in accordance with
§ 2642(b)(1) of the Internal Revenue Code
(the Code). This alternate method may be
used in lieu of the letter ruling process. No
user fee is charged for requests filed under
this revenue procedure.
SECTION 2. BACKGROUND
.01 Chapter 13 of the Code imposes a
GST tax on all transfers, whether made di-
rectly or indirectly, to skip persons. Under
§ 2613(a), a skip person includes a person
who is two or more generations below the
generation of the transferor or a trust, if all
of the interests are held by skip persons.
Generally, under § 2652, the transferor is
the individual who transfers property in a
transaction subject to the federal gift or es-
tate tax. Under § 2611(a), transfers that
are subject to the GST tax are direct skips,
taxable distributions, and taxable termina-
tions.
.02 Section 2602 provides that the
amount of GST tax imposed on a transfer
is determined by multiplying the amount
transferred by the applicable rate. Under
§ 2641, the applicable rate for a transfer
is the maximum federal estate tax rate
multiplied by the inclusion ratio, and the
2004–31 I.R.B.
inclusion ratio (defined under § 2642) is
one minus the applicable fraction. The
applicable fraction is a fraction the nu-
merator of which is the amount of GST
exemption allocated to the trust (or to the
property transferred in a direct skip), and
the denominator of which is the value
of the property transferred to the trust
(or involved in the direct skip) reduced by
federal estate tax and state estate and death
taxes actually recovered from the trust (or
transferred property) and any charitable
deduction allowed under § 2055 or 2522
with respect to the property.
.03 Section 2631 allows every trans-
feror a GST exemption of $1,000,000 that
may be allocated to transfers made by the
transferor either during the transferor’s life
or at death. For calendar years after 1998,
the exemption amount has been indexed
for inflation and, for transfers made be-
tween January 1, 2004, and December 31,
2009, inclusive, the exemption equals the
amount that is exempted from transfer tax
by the applicable credit amount described
in § 2010.
.04 An outright transfer to an individ-
ual who is a skip person that qualifies for
the gift tax exclusion under § 2503(b) or
2503(e) is deemed to have an inclusion ra-
tio of zero and, thus, is not subject to the
GST tax. A different rule, however, ap-
plies for a transfer to a trust that is a direct
skip. Under § 2642(c)(2), a transfer to a
trust for the benefit of one beneficiary that
qualifies for the gift tax annual exclusion
will be deemed to have a zero inclusion
ratio only if certain requirements are met.
Many trusts, however, have more than one
beneficiary and thus will not have an inclu-
sion ratio of zero by reason of § 2642(c)(2),
even if the trust meets the other require-
ment of that section. In this case, the trans-
feror must affirmatively allocate GST ex-
emption to the trust if the transferor desires
to reduce the inclusion ratio to zero.
.05 Affirmative allocations of GST ex-
emption to transfers made during life gen-
erally are made on a federal gift tax return
(Form 709, United States Gift (and Gener-
ation-Skipping Transfer) Tax Return), and
can be made whether or not the return is
timely filed. Under § 2642(b)(1), if a trans-
feror allocates GST exemption on a timely
filed federal gift tax return, the transferor
may allocate an amount of GST exemp-
tion equal to the value of the property on
the date of the transfer to reduce the inclu-
142
sion ratio to zero. If, however, the trans-
feror allocates GST exemption on a gift tax
return that is not timely filed (late alloca-
tion), then under § 2642(b)(3), to reduce
the inclusion ratio to zero, the transferor
must allocate an amount of GST exemp-
tion equal to the value of the property ei-
ther on the date the return is filed or on the
first day of the month in which that return
is filed.
.06 Automatic allocations of GST ex-
emption are made under § 2632 to cer-
tain transfers made during life that are di-
rect skips, so that the inclusion ratio for
such transfers may be reduced to zero even
without any affirmative allocation of GST
exemption. As a result of The Economic
Growth and Tax Relief Reconciliation Act
of 2001 (EGTRRA), Pub. L. No. 107–16,
§ 561, 115 Stat. 91, automatic allocations
are also made to certain transfers made af-
ter 2000 that are not direct skips. With
regard to pre–2001 transfers made during
life, however, if a transferor failed to make
an affirmative allocation of the GST ex-
emption on a timely filed gift tax return,
no relief was available, other than to make
a late allocation based on the value of the
property as of the filing of the late alloca-
tion.
.07 Section 564 of EGTRRA added
§ 2642(g) to the Code, which provides,
generally, that the Secretary is to pre-
scribe by regulations the circumstances
and procedures under which an extension
of time will be granted to affirmatively
allocate GST exemption, and that the
time for making the allocation shall be
treated as if not expressly prescribed by
statute. In response, the Internal Revenue
Service issued Notice 2001–50, 2001–2
C.B. 189, which announced that trans-
ferors may seek an extension of time to
make an allocation of GST exemption.
That notice provides, generally, that under
§ 301.9100–3, relief will be granted if the
taxpayer establishes to the satisfaction of
the Commissioner that the taxpayer acted
reasonably and in good faith and that a
grant of the requested relief will not preju-
dice the interests of the government. Thus,
if relief is granted under § 301.9100–3 and
the allocation is made, the amount of GST
exemption necessary to reduce the inclu-
sion ratio to zero is based on the value of
the property on the date of the transfer and
the allocation is effective as of the date of
the transfer.
August 2, 2004
 .08 To date, the Service has issued
several letter rulings under § 301.9100–3
granting an extension of time to make a
timely allocation in situations in which a
transfer to a trust qualified for the gift tax
annual exclusion under § 2503(b), but was
not deemed to have a zero inclusion ratio
because the trust did not meet one or more
of the requirements of § 2642(c)(2) (for
example, because there was more than one
beneficiary of the trust). In most of these
cases, the transferor failed to allocate GST
exemption to the trust on a timely filed
gift tax return because the transferor was
not aware of the need to affirmatively al-
locate the exemption to the transfers. The
Service believes that in these cases, it is
appropriate to provide an alternate simpli-
fied method to obtain an extension of time
to make an allocation of GST exemption,
provided that certain requirements (set
forth in sections 3 and 4 of this revenue
procedure) are met. In such a case, the
transferor’s GST exemption remaining at
the time the gift tax return is filed pursuant
to this revenue procedure may be allocated
to the transfer based on the value of the
property as of the date of the transfer.
SECTION 3. SCOPE
.01 In General. This revenue procedure
applies only to a taxpayer who satisfies the
following requirements:
(1) On or before December 31, 2000,
the taxpayer made or was deemed to have
made a transfer by gift to a trust from
which a GST may be made;
(2) At the time the taxpayer files the
request for relief under this revenue pro-
cedure, no taxable distributions have been
made and no taxable terminations have oc-
curred;
(3) The transfer qualified for the annual
exclusion under § 2503(b), and the amount
of the transfer, when added to the value
of all other gifts by the transferor to that
donee in the same year, was equal to or less
than the amount of the applicable annual
exclusion for the year of the transfer;
(4) No GST exemption was allocated to
the transfer, whether or not a Form 709 was
filed;
(5) At the time the taxpayer files a re-
quest for relief under this revenue proce-
dure, the taxpayer has unused GST exemp-
tion available to allocate to the transfer;
and
August 2, 2004
(6) All requirements of section 4 of this
revenue procedure are satisfied.
.02 Failure to Qualify for Relief Under
This Revenue Procedure. Taxpayers who
are denied relief or who are otherwise
outside the scope of this revenue proce-
dure may request an extension of time
to allocate GST exemption by request-
ing a letter ruling under the provisions of
§ 301.9100–3. The procedural require-
ments for requesting a letter ruling are
described in Rev. Proc. 2004–1, 2004–1
C.B. 1 (or its successors). If a letter ruling
is requested after relief has been denied
under this revenue procedure, the letter
ruling request must indicate that relief was
requested and denied under this revenue
procedure. Rev. Proc. 2004–1, Appendix
C, 2004–1 I.R.B. 70.
SECTION 4. RELIEF FROM LATE
ALLOCATIONS OF GST EXEMPTION
.01 Procedural Requirements.
(1) File a Form 709 for the year of the
transfer to the trust, regardless of whether
a Form 709 had been previously filed for
that year. State at the top of the Form 709
that the return is “FILED PURSUANT TO
REV. PROC. 2004-46.”
(2) Report on the Form 709 the value
of the transferred property as of the date of
the transfer.
(3) Allocate GST exemption to the
trust by attaching a statement to the Form
709 entitled “Notice of Allocation.” The
notice of allocation must contain the fol-
lowing information:
(a) clear identification of the trust,
including the trust’s identifying number,
as defined in § 6109 and the regulations
thereunder, when applicable;
(b) the value of the property trans-
ferred as of the date of the transfer (ad-
justed to account for split gifts, if any);
(c) the amount of taxpayer’s un-
used GST exemption at the time this No-
tice of Allocation is filed (taxpayers are re-
minded that they must have unused GST
exemption at the time this Notice of Allo-
cation is filed);
(d) the amount of GST exemption
allocated to the transfer;
(e) the inclusion ratio of the trust
after the allocation; and
(f) a statement that all of the re-
quirements of section 3.01 of this revenue
procedure have been met.
143
(4) Subject to any change in applica-
ble instructions in future forms, instruc-
tions, or guidance published by the Ser-
vice, send the Form 709 with attachments
to the Cincinnati Service Center for pro-
cessing.
(a) If a private delivery service
is used, the Form 709 with attachments
should be sent to:
Internal Revenue Service Center
201 W. Rivercenter Blvd.
Covington, KY 41012.
(b) If a private delivery service is
not used, the Form 709 with attachments
should be sent to:
Internal Revenue Service Center
Cincinnati, OH 45999.
(5) The Form 709 must be filed on or
before the date prescribed for filing the
federal estate tax return for the transferor’s
estate (determined with regard to any ex-
tensions actually obtained), regardless of
whether an estate tax return is required to
be filed.
.02 Relief from Late GST Exemption Al-
location. Upon receipt of a request for
relief under section 4.01 of this revenue
procedure, the Service Center will deter-
mine whether the requirements for grant-
ing relief to make a GST exemption allo-
cation under this revenue procedure have
been satisfied and will notify the taxpayer
of the result of this determination. If the
Service Center determines that the require-
ments for granting relief to make a GST
exemption allocation under this revenue
procedure have been satisfied, the alloca-
tion will be effective as of the date of the
transfer.
.03 Subsequent Estate Tax Inclusion Pe-
riod. A grant of relief under this revenue
procedure does not preclude a subsequent
determination that the transfer is one de-
scribed in § 2642(f), specifically an inter
vivos transfer the value of which would
be included in the transferor’s gross es-
tate under chapter 11 (other than by reason
of § 2035) if the transferor died immedi-
ately after making the transfer. If it is de-
termined that the transfer is one described
in § 2642(f), the GST exemption allocated
pursuant to this revenue procedure would
not be changed, but the effective date and
effect of that allocation of GST exemp-
tion would be governed by § 26.2632–1(c)
2004–31 I.R.B.
of the Generation-Skipping Transfer Tax
Regulations.
SECTION 5. EFFECT ON OTHER
DOCUMENTS
Notice 2001–50 is modified.
SECTION 6. EFFECTIVE DATE
.01 In General. This revenue procedure
is effective August 2, 2004.
.02 Transition Rule for Pending Letter
Ruling Requests. If a taxpayer has filed
a request for a letter ruling seeking an ex-
tension of time to allocate GST exemption
and that request is pending in the national
office on August 2, 2004, the taxpayer may
withdraw that letter ruling request and re-
ceive a refund of the taxpayer’s user fee if,
prior to the earlier of September 16, 2004,
or the issuance of the letter ruling, the tax-
payer notifies the national office that it will
withdraw its letter ruling request. Other-
wise, the national office will process letter
ruling requests pending on August 2, 2004,
and will retain the user fee paid.
2004–31 I.R.B.
SECTION 7. PAPERWORK
REDUCTION ACT
The collection of information con-
tained in this revenue procedure has been
reviewed and approved by the Office
of Management and Budget in accor-
dance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number
1545–1895.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
OMB control number.
The collections of information in this
revenue procedure are in section 4. This
information is required to be submitted to
the applicable service center in order to ob-
tain an automatic extension of time to al-
locate GST exemption. This information
will be used to determine whether the el-
igibility requirements for obtaining relief
have been met. The collection of informa-
tion is required to obtain a benefit. The
likely respondents are individuals.
144
The estimated total annual reporting
burden is 350 hours.
The estimated annual burden per re-
spondent varies from 2 hours to 10 hours,
depending on individual circumstances,
with an estimated average burden of 7
hours to complete the statements required
under this revenue procedure. The esti-
mated number of respondents is 50.
The estimated annual frequency of re-
sponses is on occasion.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Lian A. Mito of the Office
of Associate Chief Counsel (Passthroughs
& Special Industries). For further infor-
mation regarding this revenue procedure,
contact Lian A. Mito at (202) 622–7830
(not a toll-free call).
August 2, 2004
Part IV. Items of General Interest
Notice of Proposed
Rulemaking
Election Out of GST Deemed
Allocations
REG–153841–02
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: These proposed regulations
provide guidance for making the elec-
tion under section 2632(c)(5)(A)(i) of
the Internal Revenue Code to not have
the deemed allocation of unused genera-
tion-skipping transfer (GST) tax exemp-
tion under section 2632(c)(1) apply with
regard to certain transfers to a GST trust,
as defined in section 2632(c)(3)(B). The
proposed regulations also provide guid-
ance for making the election under section
2632(c)(5)(A)(ii) to treat a trust as a GST
trust. The regulations primarily affect in-
dividuals.
DATES: Written and electronic comments
and requests for a public hearing must be
received by October 12, 2004.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–153841–02),
room 5203, Internal Revenue Ser-
vice, PO Box 7604, Ben Franklin Sta-
tion, Washington, DC 20044. Submis-
sions may be hand-delivered Monday
through Friday between the hours of
8 a.m. and 4 p.m. to: CC:PA:LPD:PR
(REG–153841–02), Courier’s Desk, In-
ternal Revenue Service, 1111 Constitution
Avenue, NW, Washington, DC, or sent
electronically, via the IRS Internet site at
www.irs.gov/regs or via the Federal eRule-
making Portal at www.regulations.gov
(IRS - REG–153841–02).
FOR FURTHER INFORMATION
CONTACT: Mayer R. Samuels, (202)
622–3090 (not a toll-free number).
August 2, 2004
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained
in this notice of proposed rulemaking has
been submitted to the Office of Manage-
ment and Budget for review in accordance
with the Paperwork Reduction Act of 1995
(44 U.S.C. 3507(d)). Comments on the
collection of information should be sent to
the Office of Management and Budget,
Attn: Desk Officer for the Department
of the Treasury, Office of Information
and Regulatory Affairs, Washington, DC
20503, with copies to the Internal Rev-
enue Service, Attn: IRS Reports Clear-
ance Officer, SE:W:CAR:MP:T:T:SP;
Washington, DC 20224. Comments on
the collection of information should be re-
ceived by September 13, 2004. Comments
are specifically requested concerning:
Whether the proposed collection of in-
formation is necessary for the proper per-
formance of the functions of the Internal
Revenue Service, including whether the
information will have practical utility;
The accuracy of the estimated burden
associated with the proposed collection of
information (see below);
How the quality, utility, and clarity of
the information to be collected may be en-
hanced;
How the burden of complying with the
proposed collection of information may be
minimized, including through the appli-
cation of automated collection techniques
or other forms of information technology;
and
Estimates of capital or start-up costs
and costs of operation, maintenance, and
purchase of service to provide information.
The collection of information
in this proposed regulation is in
§26.2632–1(b)(2)(ii), (b)(2)(iii), and
(b)(3). This information is required by
the IRS for taxpayers who elect to have
the automatic allocation rules not apply
to the current transfer and/or to future
transfers to the trust or to terminate such
election. This information is also required
145
by the IRS for taxpayers who elect to treat
trusts described in section 2632(c)(3)(B)(i)
through (vi) as GST trusts or to terminate
such election. This information will be
used to identify the trusts to which the
election or termination of election will
apply. The collection of information is re-
quired in order to have a valid election or
termination of election. The likely respon-
dents are individuals contributing to trusts
that have skip persons as beneficiaries.
Estimated total annual reporting bur-
den: 12,500 hours.
Estimated average annual burden hours
per respondent: 30 minutes.
Estimated number of respondents:
25,000.
An agency may not conduct or sponsor,
and a person is not required to respond to, a
collection of information unless it displays
a valid control number assigned by the Of-
fice of Management and Budget.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.
Background
Section 2601 imposes a tax on every
generation-skipping transfer (GST). Under
section 2631(a), for purposes of determin-
ing the amount of GST tax imposed on a
transfer, every individual is allowed a GST
exemption ($1,500,000 in 2004) that may
be allocated by the individual (or his or her
executor) to any property with regard to
which the individual is the transferor. Gen-
erally, under section 2632(a), an allocation
of an individual’s GST exemption may be
made at any time on or before the date pre-
scribed for filing the estate tax return for
the individual’s estate (determined with re-
gard to extensions).
Section 2632 also provides deemed al-
location rules pursuant to which an indi-
vidual’s available GST exemption is au-
tomatically allocated to certain kinds of
2004–31 I.R.B.
transfers, without any action on the part
of the transferor. Under section 2632(b),
an individual’s unused GST exemption is
automatically allocated to transfers made
during that individual’s lifetime that are di-
rect skips as defined in section 2612(c),
to the extent necessary to make the inclu-
sion ratio zero for the property transferred.
Under section 2632(c), in the case of a
lifetime transfer made after December 31,
2000, that is an indirect skip, the trans-
feror’s available GST exemption is auto-
matically allocated to the transfer to the
extent necessary to make the inclusion ra-
tio zero for the property transferred. Sec-
tion 2632(c)(3)(A) defines an indirect skip
as a transfer of property (other than a di-
rect skip) subject to gift tax that is made
to a GST trust. A GST trust is defined in
section 2632(c)(3)(B), in general, as any
trust that could have a generation-skip-
ping transfer. However, no trust described
in section 2632(c)(3)(B)(i) through (vi) is
treated as a GST trust, because a suffi-
cient possibility exists (based on the statu-
tory criteria) that the trust corpus will not
be distributed to lower generations. A
transfer to any trust described in section
2632(c)(3)(B)(i) through (vi) will not be
subject to the automatic allocation of the
GST exemption. The automatic allocation
under section 2632(c) also applies to an in-
direct skip occurring upon the post–2000
termination of an estate tax inclusion pe-
riod.
Under section 2632(c)(5)(A)(i)(I), an
individual may elect out of the deemed
allocation rules so that GST exemption
will not be allocated automatically to a
particular transfer that is an indirect skip.
Under section 2632(c)(5)(B)(i), this elec-
tion out with regard to a particular indirect
skip shall be deemed timely if made on a
timely filed gift tax return for the calendar
year in which the transfer was made, or
deemed to have been made under section
2632(c)(4) with regard to trusts subject
to an estate tax inclusion period, or on
such later dates as may be prescribed in
regulations.
Under section 2632(c)(5)(A)(i)(II), an
individual may elect out of the deemed
allocation rules for indirect skips so that
GST exemption will not be allocated auto-
matically to any or all transfers made to the
trust by that individual, regardless of when
a transfer is, or may in the future be, made.
Under section 2632(c)(5)(B)(ii), this elec-
2004–31 I.R.B.
tion out with regard to any or all transfers
to the trust by that individual may be made
on a timely filed gift tax return for the cal-
endar year for which the election is to be-
come effective.
Alternatively, under section 2632(c)
(5)(A)(ii), an individual may elect to treat
any trust as a GST trust with regard to any
or all transfers made by that individual
to the trust. If this election is made, the
rules for the automatic allocation of the
GST exemption will apply with regard
to that individual’s transfers to the trust,
notwithstanding that the trust is described
in section 2632(c)(3)(B)(i) through (vi).
Under section 2632(c)(5)(B)(ii), the elec-
tion to treat a trust as a GST trust may be
made on a timely filed gift tax return for
the calendar year for which the election is
to become effective.
Notice 2001–50, 2001–2 C.B. 189,
states that the Treasury Department and
the IRS will issue regulations providing
that the election out of the automatic allo-
cation for indirect skips and the election
to treat any trust as a GST trust must be
made on a timely filed federal gift tax
return (which is the same rule that applies
for the election out of the automatic allo-
cation for direct skips contained in section
2632(b)(3) and §26.2632–1(b)(1)(i)).
Explanation of Provisions
Under the proposed regulations, the
election out of the automatic allocation
rules for indirect skips and the election
to treat any trust as a GST trust are to
be made on a timely filed federal gift tax
return.
Under the proposed regulations, a trans-
feror who wants to elect out of the auto-
matic allocation rules for indirect skips has
the option of electing out for the specific
transfer to the GST trust, or making a sin-
gle election with regard to the trust that ap-
plies to the current transfer and all subse-
quent transfers made by that transferor to
the trust. Under the second option, once
the election is made with regard to a trust,
the election remains effective for all subse-
quent transfers to that trust by the electing
transferor, until that transferor’s election is
terminated. Practitioners have commented
that in many cases, particularly situations
in which trust corpus consists of primarily
insurance contracts, the transferor may not
be required to file a Federal gift tax return
146
reporting annual transfers to a GST trust
because the transfers qualify for the gift tax
annual exclusion under section 2503(b). If
under the terms of the trust instrument dis-
tributions to skip persons are unlikely, the
transferor may choose not to allocate GST
exemption to the trust. The rule in the
proposed regulation is intended to allevi-
ate the need to repeatedly file a gift tax re-
turn to elect out of the automatic alloca-
tion rules for transfers that would not oth-
erwise require a Federal gift tax return to
be filed. Thus, once the transferor “elects
out” of the automatic allocation rule for in-
direct skips with regard to any or all trans-
fers made by that transferor to the trust, the
election out, until terminated, remains ef-
fective for all subsequent transfers made
by that transferor to the trust, without any
further reporting requirement on the part of
the transferor. A similar rule applies with
regard to the election to treat a trust as a
GST trust.
Finally, the proposed regulations revise
the examples illustrating the rules for allo-
cation of GST exemption to reflect the re-
cent statutory changes.
Proposed Effective Date
The regulations are proposed to be ap-
plicable for elections made on or after the
date that the proposed regulations are pub-
lished in the Federal Register. However,
any election under section 2632(c)(5)(A)
made before that date will be recognized if
the election was made on a timely filed gift
tax return in a manner that provided ade-
quate notice to the Commissioner that the
transferor made the election.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in Exec-
utive Order 12866. Therefore, a regula-
tory assessment is not required. It also has
been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these pro-
posed regulations, and because these pro-
posed regulations do not impose a collec-
tion of information on small entities, the
Regulatory Flexibility Act (5 U.S.C. chap-
ter 6) does not apply. Therefore, a Regu-
latory Flexibility Analysis is not required.
Pursuant to section 7805(f) of the Internal
Revenue Code, the proposed regulations
August 2, 2004
will be submitted to the Small Business
Administration for comment on their im-
pact on small business.
Comments and Requests for Public
Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any written (a signed
original and eight (8) copies) or electronic
comments that are submitted timely to
the IRS. The IRS and Treasury Depart-
ment request comments on the clarity of
the proposed rules and how they can be
made easier to understand. All comments
will be available for public inspection and
copying. A public hearing will be sched-
uled if requested in writing by any person
that timely submits written comments. If a
public hearing is scheduled, notice of the
date, time, and place for the public hearing
will be published in the Federal Register.
Drafting Information
The principal author of these pro-
posed regulations is Mayer R. Samuels,
Office of the Associate Chief Counsel
(Passthroughs and Special Industries),
IRS. If you have any questions concerning
these proposed regulations, please contact
Mayer R. Samuels at (202) 622–3090.
Other personnel from the IRS and the
Treasury Department participated in their
development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 26 is pro-
posed to be amended as follows:
PART 26 — GENERATION-SKIPPING
TRANSFER TAX REGULATIONS
UNDER THE TAX REFORM ACT OF
1986
Paragraph 1. The authority citation for
part 26 continues to read, in part, as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. In §26.2600–1, the table is
amended under the entries for §26.2632–1
by revising the entry for paragraph (b)(2)
and adding entries for paragraphs (b)(3),
(b)(4) and (e) to read as follows:
August 2, 2004
§26.2600–1 Table of contents.
*****
§26.2632–1 Allocation of GST exemption.
*****
(b) * * *
(2) Automatic allocation to indirect
skips made after December 31, 2000.
(3) Election to treat trust as GST trust.
(4) Allocation to other transfers.
*****
(e) Effective date
*****
Par. 3. Section 26.2632–1 is amended
as follows:
1. Paragraph (b)(2) is redesignated as
paragraph (b)(4).
2. Paragraphs (b)(2) and (b)(3) are
added.
3. In newly designated paragraph
(b)(4)(i), the third sentence is revised.
4. In newly designated paragraph
(b)(4)(ii)(A)(1), the fourth sentence is re-
vised.
5. In newly designated paragraph
(b)(4)(ii)(B):
a. All references to paragraph
“(b)(2)(ii)(A)(1)(i)” are removed and
“(b)(4)(ii)(A)(1)(i)” is added in its place.
b. All references to paragraph
“(b)(2)(ii)(A)(1)(ii)” are removed and
“(b)(4)(ii)(A)(1)(ii)” is added in its place.
c. All references to paragraph
“(b)(2)(ii)(A)(1)(iii)” are removed and
“(b)(4)(ii)(A)(1)(iii)” is added in its place.
6. Examples 1 through 5 in newly des-
ignated paragraph (b)(4)(iii) are revised.
7. In paragraph (c)(1), the first sentence
is removed and two sentences are added in
its place.
8. In paragraph (d)(1), the fourth sen-
tence is revised.
9. Paragraph (e) is added.
The additions and revisions read as fol-
lows:
§26.2632–1 Allocation of GST exemption.
*****
(b) * * *
(2) Automatic allocation to indirect
skips made after December 31, 2000—(i)
In general. An indirect skip is a transfer
of property to a GST trust as defined in
section 2632(c)(3)(B) provided that the
transfer is subject to gift tax and does not
147
qualify as a direct skip. In the case of
an indirect skip made after December 31,
2000, to which section 2642(f) (relating to
transfers subject to an estate tax inclusion
period) does not apply, the transferor’s
unused GST exemption is automatically
allocated to the property transferred (but
not in excess of the fair market value of
the property on the date of the transfer).
In the case of an indirect skip to which
section 2642(f) does apply, the indirect
skip is deemed to be made at the close
of the estate tax inclusion period and the
GST exemption is deemed to be allocated
at that time. The transferor may prevent
the automatic allocation of GST exemp-
tion with regard to an indirect skip, as
provided in paragraphs (b)(2)(ii) and (iii)
of this section.
(ii) Election to have automatic alloca-
tion rules not apply to the current transfer.
The transferor may prevent the automatic
allocation of GST exemption with regard
to the current indirect skip (and not to any
other transfer) to a trust, or to one or more
separate shares that are treated as separate
trusts under §26.2654–1(a)(1), by attach-
ing a statement to a timely filed Form 709
(as defined in paragraph (b)(1)(ii) of this
section) for the calendar year in which
the transfer was made (whether or not a
Form 709 would otherwise be required
for that year). The statement must iden-
tify the trust (or separate share), describe
the transfer, and specifically provide that
the transferor is electing, pursuant to
section 2632(c)(5)(A), to have the auto-
matic allocation rules contained in section
2632(c)(1) not apply to the described
transfer to the trust (or separate share).
In the case of a transfer treated as made
one-half by the transferor and one-half by
the transferor’s spouse under section 2513,
a statement must be attached to the return
filed by each transferor seeking to prevent
the automatic allocation. The election will
apply only with regard to the described
transfer, and all subsequent transfers to
the trust (or separate share) will be subject
to the automatic allocation rules, unless
the transferor subsequently files an elec-
tion described in paragraph (b)(2)(iii) of
this section, or files an election under this
paragraph with regard to each transfer as
additional transfers are made.
(iii) Election to have automatic alloca-
tion rules not apply to both the current
transfer and any or all future transfers
2004–31 I.R.B.
to the trust—(A) In general. The trans-
feror may prevent the automatic alloca-
tion of GST exemption to both the current
transfer and any or all subsequent trans-
fers made by the transferor to the trust or to
one or more separate shares that are treated
as separate trusts under §26.2654–1(a)(1).
The transferor must attach a statement to
a timely filed Form 709 (as defined para-
graph (b)(1)(ii) of this section) for the cal-
endar year in which the current transfer
was made (whether or not a Form 709
would otherwise be required for that year).
The statement must identify the trust (or
separate share), describe the current trans-
fer, and specifically provide that pursuant
to section 2632(c)(5)(A) the transferor is
electing to have the automatic allocation
rules contained in section 2632(c)(1) not
apply to the described current transfer as
well as all future transfers made by the
transferor to the trust (or separate share).
The election, unless and until terminated,
will remain in effect for all future transfers
made by the transferor to the trust (or sep-
arate share). No future gift tax return will
have to be filed by the transferor in order
to prevent the automatic allocation of the
GST exemption to such future transfers.
(B) Termination of election. The elec-
tion described in paragraph (b)(2)(iii)(A)
of this section may be terminated by the
transferor for transfers to the trust (or
separate share) in a subsequent year by at-
taching a statement to a timely filed Form
709 (as defined in paragraph (b)(1)(ii) of
this section) for the calendar year in which
the first transfer to which the election is
not to apply was made (whether or not a
Form 709 would otherwise be required for
that year). The statement must identify
the trust (or separate share), describe the
transfer, and provide that the prior elec-
tion out of the GST automatic allocation
rule described in §26.2632–1(b)(2)(iii)(A)
is terminated. Accordingly, the auto-
matic allocation rules contained in section
2632(c)(1) are to apply to the described
current transfer as well as to all future
transfers made by the transferor to the
trust (or separate share) unless and to the
extent that another election under section
2632(c)(5)(A) is made in the future.
(iv) Subsequent allocations. Making an
election under paragraph (b)(2)(ii) or (iii)
of this section does not prevent the trans-
feror from allocating the transferor’s avail-
able GST exemption to a current transfer
2004–31 I.R.B.
(or, in the case of an election made un-
der paragraph (b)(2)(iii) of this section, to
any future transfer) to a trust (or separate
share) either on a timely filed Form 709
(as defined in paragraph (b)(1)(ii) of this
section) reporting the transfer, or at a later
date in accordance with the provisions of
paragraph (b)(4) of this section.
(3) Election to treat trust as GST
trust—(i) In general. A transferor may
elect to treat any trust as a GST trust, in
which case the automatic allocation rules
will apply to current and future transfers
made by the electing transferor to the trust.
The transferor must attach a statement to
a timely filed Form 709 (as defined in
paragraph (b)(1)(ii) of this section) for
the calendar year in which a transfer was
made by the transferor (whether or not a
Form 709 would otherwise be required
for that year). The statement must iden-
tify the trust, describe the current transfer,
and specifically provide that, pursuant to
section 2632(c)(5)(A)(ii), the transferor is
electing to have the trust treated as a GST
trust as defined in section 2632(c)(3)(B).
As a result of this election, the current
transfer and all future transfers made by
the transferor to the trust will be indirect
skips as defined in paragraph (b)(2)(i) of
this section to which the transferor’s un-
used GST exemption will be automatically
allocated in accordance with paragraph
(b)(2) of this section. The election will
remain in effect for all future transfers
made by the transferor to the trust unless
and until terminated (as described below).
(ii) Termination of election. The elec-
tion may be terminated by the transferor in
a subsequent year by attaching to a timely
filed Form 709 (as defined in paragraph
(b)(1)(ii) of this section) for the calendar
year in which the first transfer to which the
election is not to apply was made (whether
or not a Form 709 would otherwise be re-
quired for the year), a statement identify-
ing the trust, describing the current trans-
fer, and providing that the prior election to
treat the trust as a GST trust as provided
under §26.2632–1(b)(3)(i) is terminated.
Accordingly, if the trust does not satisfy
the definition of a GST trust, the auto-
matic allocation rules contained in section
2632(c)(1) will not apply to the described
current transfer or to any future transfers
made by the transferor to the trust, un-
less and until another election under sec-
tion 2632(c)(5)(A) is made in the future.
148
(4) Allocation to other transfers—(i) In
general. * * * See paragraph (b)(4)(ii) of
this section. * * *
(ii) Effective date of allocation—(A) In
general. (1) * * * For purposes of this para-
graph (b)(4)(ii), the Form 709 is deemed
filed on the date it is postmarked to the In-
ternal Revenue Service address as directed
in forms or other guidance published by
the Service. * * *
*****
(iii) Examples. The following examples
illustrate the provisions of this paragraph
(b):
Example 1. Modification of allocation of GST
exemption. On December 1, 2003, T transfers
$100,000 to an irrevocable GST trust described in
section 2632(c)(3)(B). The transfer to the trust is
not a direct skip. The date prescribed for filing the
gift tax return reporting the taxable gift is April 15,
2004. On February 10, 2004, T files a Form 709
on which T properly elects out of the automatic
allocation rules contained in section 2632(c)(1) with
respect to the transfer in accordance with paragraph
(b)(2)(ii) of this section, and allocates $50,000 of
GST exemption to the trust. On April 13th of the
same year, T files an additional Form 709 on which T
confirms the election out of the automatic allocation
rules contained in section 2632(c)(1) and allocates
$100,000 of GST exemption to the trust in a manner
that clearly indicates the intention to modify and su-
persede the prior allocation with respect to the 2003
transfer. The allocation made on the April 13 return
supersedes the prior allocation because it is made on
a timely-filed Form 709 that clearly identifies the
trust and the nature and extent of the modification
of GST exemption allocation. The allocation of
$100,000 of GST exemption to the trust is effective
as of December 1, 2003. The result would be the
same if the amended Form 709 decreased the amount
of the GST exemption allocated to the trust.
Example 2. Modification of allocation of GST
exemption. The facts are the same as in Example 1,
except on July 8, 2004, T files a Form 709 attempting
to reduce the earlier allocation. The return is not a
timely filed return. The $100,000 GST exemption
allocated to the trust, as amended on April 13, 2004,
remains in effect because an allocation, once made,
is irrevocable and may not be modified after the last
date on which a timely filed Form 709 can be filed.
Example 3. Effective date of late allocation of
GST exemption. On December 1, 2003, T transfers
$100,000 to an irrevocable GST trust described in
section 2632(c)(3)(B). The transfer to the trust is not a
direct skip. The date prescribed for filing the gift tax
return reporting the taxable gift is April 15, 2004. On
February 10, 2004, T files a Form 709 on which T
properly elects out of the automatic allocation rules
contained in section 2632(c)(1) in accordance with
paragraph (b)(2)(ii) of this section with respect to that
transfer. On December 1, 2004, T files a Form 709
and allocates $50,000 to the trust. The allocation is
effective as of December 1, 2004.
Example 4. Effective date of late allocation of
GST exemption. T transfers $100,000 to a GST trust
on December 1, 2003, in a transfer that is not a di-
August 2, 2004
rect skip. On April 15, 2004, T files a Form 709 on
which T properly elects out of the automatic alloca-
tion rules contained in section 2632(c)(1) with respect
to the entire transfer in accordance with paragraph
(b)(2)(ii) of this section and T does not make an allo-
cation of any GST exemption on the Form 709. On
September 1, 2004, the trustee makes a taxable distri-
bution from the trust to T’s grandchild in the amount
of $30,000. Immediately prior to the distribution, the
value of the trust assets was $150,000. On the same
date, T allocates GST exemption to the trust in the
amount of $50,000. The allocation of GST exemp-
tion on the date of the transfer is treated as preceding
in point of time the taxable distribution. At the time
of the GST, the trust has an inclusion ratio of .6667
(1 - (50,000/150,000)).
Example 5. Automatic allocation to split-gift. On
December 1, 2003, T transfers $50,000 to an irrevo-
cable GST Trust described in section 2632(c)(3)(B).
The transfer to the trust is not a direct skip. On April
30, 2004, T and T’s spouse, S, each files an initial
gift tax return for 2003, on which they consent, pur-
suant to section 2513, to have the gift treated as if
one-half had been made by each. Previously, nei-
ther T nor S filed a timely gift tax return electing out
of the automatic allocation rules contained in section
2632(c)(1). As a result of the election under section
2513, which is retroactive to the date of T’s transfer,
T and S are each treated as the transferor of one-half
Announcement of Disciplinary Actions Involving
Attorneys, Certified Public Accountants, Enrolled Agents,
and Enrolled Actuaries — Suspensions, Censures,
Disbarments, and Resignations
Announcement 2004-63
Under Title 31, Code of Federal Regu-
lations, Part 10, attorneys, certified public
accountants, enrolled agents, and enrolled
actuaries may not accept assistance from,
or assist, any person who is under disbar-
ment or suspension from practice before
the Internal Revenue Service if the assis-
tance relates to a matter constituting prac-
tice before the Internal Revenue Service
and may not knowingly aid or abet another
Disbarments From Practice Before the Internal Revenue
Service After Notice and an Opportunity for a Proceeding
Under Title 31, Code of Federal Regu-
lations, Part 10, after notice and an oppor-
Name Address
Banister, Joseph R. San Jose, CA
August 2, 2004
of the property transferred in the indirect skip. Thus,
$25,000 of T’s unused GST exemption and $25,000
of S’s unused GST exemption is automatically allo-
cated to the trust. Both allocations are effective on
and after the date that T made the transfer. The re-
sult would be the same if T’s transfer constituted a
direct skip subject to the automatic allocation rules
contained in section 2632(b).
(c) Special rules during an estate tax in-
clusion period—(1) In general. An alloca-
tion of GST exemption (including an au-
tomatic allocation to a direct skip, but not
an indirect skip) to property subject to an
estate tax inclusion period (ETIP) cannot
be revoked, but becomes effective no ear-
lier than the date of any termination of the
ETIP with respect to the trust. See para-
graph (b)(2)(i) of this section regarding the
automatic allocation of GST exemption to
an indirect skip subject to an ETIP. * * *
*****
(d) Allocations after the transferor’s
death—(1) * * * A late allocation of GST
exemption by an executor, other than an
allocation that is deemed to be made under
person to practice before the Internal Rev-
enue Service during a period of suspen-
sion, disbarment, or ineligibility of such
other person.
To enable attorneys, certified public
accountants, enrolled agents, and enrolled
actuaries to identify persons to whom
these restrictions apply, the Director, Of-
fice of Professional Responsibility, will
announce in the Internal Revenue Bulletin
tunity for a proceeding before an adminis-
trative law judge, the following individu-
Designation
CPA
149
section 2632(b)(1) or (c)(1), with respect
to a lifetime transfer of property is made
on Form 706, Form 706NA, or Form 709
(filed on or before the due date of the
transferor’s estate tax return) and is effec-
tive as of the date the allocation is filed.
***
*****
(e) Effective Date. Paragraphs (b)(2)
and (b)(3), the third sentence of paragraph
(b)(4)(i), the fourth sentence of paragraph
(b)(4)(ii)(A), paragraph (b)(4)(iii), the first
two sentences of paragraph (c)(1), and the
fourth sentence of paragraph (d)(1) of this
section, when published as final regula-
tions, will apply as of July 13, 2004.
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on July 12, 2004,
8:45 a.m., and published in the issue of the Federal Register
for July 13, 2004, 69 F.R. 42000)
their names, their city and state, their pro-
fessional designation, the effective date
of disciplinary action, and the period of
suspension. This announcement will ap-
pear in the weekly Bulletin at the earliest
practicable date after such action and will
continue to appear in the weekly Bulletins
for five successive weeks.
als have been disbarred from practice be-
fore the Internal Revenue Service:
Effective Date
June 25, 2004
2004–31 I.R.B.
Suspensions From Practice Before the Internal Revenue
Service After Notice and an Opportunity for a Proceeding
Under Title 31, Code of Federal Reg- ministrative law judge, the following indi- from practice before the Internal Revenue
ulations, Part 10, after notice and an op- viduals have been placed under suspension Service:
portunity for a proceeding before an ad-

Name Address Designation Effective Date

Stukes, Donald A. Pound Ridge, NY CPA May 13, 2004

to
May 11, 2005
Moore, Earl Riverview, FL CPA March 26, 2004
to
March 24, 2006

Consent Suspensions From Practice Before the Internal

Revenue Service
Under Title 31, Code of Federal Regu-
lations, Part 10, an attorney, certified pub-
lic accountant, enrolled agent, or enrolled
actuary, in order to avoid institution or con-
clusion of a proceeding for his or her dis-
barment or suspension from practice be-
fore the Internal Revenue Service, may of-
fer his or her consent to suspension from
such practice. The Director, Office of Pro-
fessional Responsibility, in his discretion,
may suspend an attorney, certified public
accountant, enrolled agent, or enrolled ac-
tuary in accordance with the consent of-
fered.
The following individuals have been
placed under consent suspension from
practice before the Internal Revenue Ser-
vice:

Name Address Designation Date of Suspension

Bell, Don W. Grand Junction, CO Enrolled Agent Indefinite

from
April 1, 2004
Lentz, Carole A. Mastic, NY Enrolled Agent Indefinite
from
April 23, 2004
Cummiskey Jr., Edward R. Warwick, NY Enrolled Agent Indefinite
from
April 23, 2004
Goble, Dennis R. Valparaiso, IN CPA Indefinite
from
April 26, 2004
Grant, Elaine C. Woodway, WA Enrolled Agent May 1, 2004
to
October 31, 2004
Rivera, Eduardo M. Torrence, CA Attorney May 1, 2004
to
October 29, 2006
Masengale, Thomas J. Indianapolis, IN Enrolled Agent Indefinite
from
May 1, 2004

2004–31 I.R.B. 150 August 2, 2004

Name Address Designation Date of Suspension

Cohick, Jeffrey S. Newville, PA Enrolled Agent May 1, 2004

to
October 30, 2004
Bach, Royce E. Deer Park, TX Enrolled Agent Indefinite
from
May 27, 2004
McMillin, Juanell Austin, TX Enrolled Agent Indefinite
from
May 28, 2004
Silva, Hesmeregildo V. Livermore, CA Enrolled Agent Indefinite
from
May 28, 2004
Grossman, Richard Durham, NC Attorney Indefinite
from
June 1, 2004
Schnieders, Joseph A. St. Louis, MO Enrolled Agent Indefinite
from
June 1, 2004
Rahn, Miriam C. Hutchinson, MN Enrolled Agent Indefinite
from
June 8, 2004
Tarantur, Dale B. Glenview, IL CPA Indefinite
from
June 15, 2004
Derby, Mark West Newton, MA CPA Indefinite
from
June 15, 2004
Miller, Winfred J. Harrisonburg, VA CPA Indefinite
from
June 30, 2004
Croom, John A. Austin, TX CPA Indefinite
from
July 1, 2004
Dion, Paul Middletown, RI CPA Indefinite
from
July 8, 2004
Todd, Debra R. Leander, TX Enrolled Agent Indefinite
from
August 30, 2004

August 2, 2004 151 2004–31 I.R.B.

Expedited Suspensions From Practice Before the Internal
Revenue Service
Under Title 31, Code of Federal Regu- the expedited proceeding is instituted (1) The following individuals have been
lations, Part 10, the Director, Office of Pro- has had a license to practice as an attor- placed under suspension from practice be-
fessional Responsibility, is authorized to ney, certified public accountant, or actuary fore the Internal Revenue Service by virtue
immediately suspend from practice before suspended or revoked for cause or (2) has of the expedited proceeding provisions:
the Internal Revenue Service any practi- been convicted of certain crimes.
tioner who, within five years from the date

Name Address Designation Date of Suspension

Somerville, Sally L. Havre de Grace, MD Attorney Indefinite

from
May 3, 2004
Simon, Laurence M. Englishtown, NJ CPA Indefinite
from
May 10, 2004
Taylor, Joelle T. Carolina Beach, NC CPA Indefinite
from
May 10, 2004
Becker, Joseph C. Austin, TX CPA Indefinite
from
May 10, 2004

Maffongelli Jr., Joseph Montclair, NJ Attorney Indefinite

from
May 10, 2004
Lence, John A. Kalispell, MT CPA Indefinite
from
May 21, 2004
McWade, Kenneth W. Kaliua, HI Attorney Indefinite
from
June 9, 2004
Sims, William A. Sausalito, CA Attorney Indefinite
from
June 9, 2004

Sommer, Peter J. Baltimore, MD Attorney Indefinite

from
June 21, 2004
Eisenberg, Alan D. Whitefish Bay, WI Attorney Indefinite
from
June 21, 2004
Litwin, Martin E. Highland Park, IL Attorney Indefinite
from
June 21, 2004

Kiernat, Bruce E. St. Paul, MN Attorney Indefinite

from
July 1, 2004

2004–31 I.R.B. 152 August 2, 2004

Resignations of Enrolled Agents
Under Title 31, Code of Federal Regu-
lations, Part 10, an enrolled agent, in or-
der to avoid the institution or conclusion
of a proceeding for his or her disbarment
or suspension from practice before the In-
ternal Revenue Service, may offer his or
her resignation as an enrolled agent. The
Director, Office of Professional Responsi-
bility, in his discretion, may accept the of-
fered resignation.
The Director, Office of Professional
Responsibility, has accepted offers of res-
ignation as an enrolled agent from the
following individuals:

Name Address Date of Resignation

Murphy, Claire A. Viera, FL May 10, 2004

Murphy, John W. Viera, FL May 10, 2004

Censure Issued by Consent

Under Title 31, Code of Federal Reg- or enrolled actuary, may offer his or her The following individuals have con-
ulations, Part 10, in lieu of a proceeding consent to the issuance of a censure. Cen- sented to the issuance of a Censure:
being instituted or continued, an attorney, sure is a public reprimand.
certified public accountant, enrolled agent,

Name Address Designation Date of Censure

Clifton, Michael J. Augusta, KS CPA May 12, 2004

Flaherty, Patrick J. Traverse City, MI CPA May 19, 2004
Monroy, Frances Petaluma, CA Enrolled Agent May 27, 2004
Pearson, Michael N. Houston, TX Enrolled Agent June 7, 2004

August 2, 2004 153 2004–31 I.R.B.

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ing extended to apply to a variation of the
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare with modi-
fied, below).
Clarified is used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguished describes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modified is used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
Abbreviations
The following abbreviations in current use
and formerly used will appear in material
published in the Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
2004–31 I.R.B.
and B, the prior ruling is modified because
it corrects a published position. (Compare
with amplified and clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revoked describes situations where the
position in the previously published ruling
is not correct and the correct position is
being stated in a new ruling.
Superseded describes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
i August 2, 2004
of a prior ruling, a combination of terms
is used. For example, modified and su-
perseded describes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspended is used in rare situations
to show that the previous published rul-
ings will not be applied pending some
future action such as the issuance of new
or amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D. —Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z —Corporation.
Numerical Finding List1 Revenue Rulings— Continued:

Bulletins 2004–27 through 2004–31 2004-78, 2004-31 I.R.B. 108

2004-79, 2004-31 I.R.B. 106
Announcements:
Tax Conventions:
2004-55, 2004-27 I.R.B. 15
2004-56, 2004-28 I.R.B. 41 2004-60, 2004-29 I.R.B. 43
2004-57, 2004-27 I.R.B. 15 Treasury Decisions:
2004-58, 2004-29 I.R.B. 66
2004-59, 2004-30 I.R.B. 94 9131, 2004-27 I.R.B. 2
2004-60, 2004-29 I.R.B. 43 9132, 2004-28 I.R.B. 16
2004-61, 2004-29 I.R.B. 67 9133, 2004-28 I.R.B. 25
2004-62, 2004-30 I.R.B. 103 9134, 2004-30 I.R.B. 70
2004-63, 2004-31 I.R.B. 149 9135, 2004-30 I.R.B. 69
9136, 2004-31 I.R.B. 112
Notices:

2004-41, 2004-28 I.R.B. 31

2004-43, 2004-27 I.R.B. 10
2004-44, 2004-28 I.R.B. 32
2004-45, 2004-28 I.R.B. 33
2004-46, 2004-29 I.R.B. 46
2004-47, 2004-29 I.R.B. 48
2004-48, 2004-30 I.R.B. 88
2004-49, 2004-30 I.R.B. 88
2004-51, 2004-30 I.R.B. 89

Proposed Regulations:

REG-153841-02, 2004-31 I.R.B. 145

REG-131486-03, 2004-28 I.R.B. 36
REG-117307-04, 2004-28 I.R.B. 39

Revenue Procedures:

2004-38, 2004-27 I.R.B. 10

2004-39, 2004-29 I.R.B. 49
2004-40, 2004-29 I.R.B. 50
2004-41, 2004-30 I.R.B. 90
2004-42, 2004-31 I.R.B. 121
2004-43, 2004-31 I.R.B. 124
2004-44, 2004-31 I.R.B. 134
2004-45, 2004-31 I.R.B. 140
2004-46, 2004-31 I.R.B. 142

Revenue Rulings:

2004-63, 2004-27 I.R.B. 6

2004-64, 2004-27 I.R.B. 7
2004-65, 2004-27 I.R.B. 1
2004-66, 2004-27 I.R.B. 4
2004-67, 2004-28 I.R.B. 28
2004-68, 2004-31 I.R.B. 118
2004-71, 2004-30 I.R.B. 74
2004-72, 2004-30 I.R.B. 77
2004-73, 2004-30 I.R.B. 80
2004-74, 2004-30 I.R.B. 84
2004-75, 2004-31 I.R.B. 109
2004-76, 2004-31 I.R.B. 111
2004-77, 2004-31 I.R.B. 119

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2004–1 through 2004–26 is in Internal Revenue Bulletin
2004–26, dated June 28, 2004.

August 2, 2004 ii 2004–31 I.R.B.

Findings List of Current Actions on
Previously Published Items1
Bulletins 2004–27 through 2004–31
Notices:

98-65
Superseded by
Rev. Proc. 2004-40, 2004-29 I.R.B. 50

2001-50
Modified by
Rev. Proc. 2004-46, 2004-31 I.R.B. 142

Revenue Procedures:

79-61
Superseded by
Rev. Proc. 2004-44, 2004-31 I.R.B. 134

94-64
Superseded by
Rev. Proc. 2004-38, 2004-27 I.R.B. 10

96-53
Superseded by
Rev. Proc. 2004-40, 2004-29 I.R.B. 50

2002-9
Modified and amplified by
Rev. Proc. 2004-41, 2004-30 I.R.B. 90

2004-4
Modified by
Rev. Proc. 2004-44, 2004-31 I.R.B. 134

Revenue Rulings:

54-379
Superseded by
Rev. Rul. 2004-68, 2004-31 I.R.B. 118

73-354
Obsoleted by
Rev. Rul. 2004-76, 2004-31 I.R.B. 111

80-7
Amplified and clarified by
Rev. Rul. 2004-71, 2004-30 I.R.B. 74
Rev. Rul. 2004-72, 2004-30 I.R.B. 77
Rev. Rul. 2004-73, 2004-30 I.R.B. 80
Rev. Rul. 2004-74, 2004-30 I.R.B. 84

81-100
Clarified and modified by
Rev. Rul. 2004-67, 2004-28 I.R.B. 28

85-70
Amplified and clarified by
Rev. Rul. 2004-71, 2004-30 I.R.B. 74
Rev. Rul. 2004-72, 2004-30 I.R.B. 77
Rev. Rul. 2004-73, 2004-30 I.R.B. 80
Rev. Rul. 2004-74, 2004-30 I.R.B. 84

1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2004–1 through 2004–26 is in Internal Revenue Bulletin 2004–26, dated June 28, 2004.

2004–31 I.R.B. iii *U.S. Government Printing Office: 2004—304–778/60146 August 2, 2004